The top legislature on Monday began its first review of the draft law, which was passed at an executive meeting of the State Council on Oct 12, during the 17th Session of the 11th National People’s Congress Standing Committee.
The draft law, expected to be finalized by spring, seeks to cut taxes on fuel efficient, clean electric vehicles while imposing increasing taxes based on engine capacity.
Taxes on vehicles with an engine capacity smaller than 1.6 liters – which account for 58 percent of Chinese cars – will be either reduced slightly or unchanged, Finance Minister Xie Xuren said in his report to the legislature on Monday.
Taxes on vehicles with an engine capacity between 1.6 and 2.5 liters will see a "moderate" increase while a "relatively large" increase will be imposed on vehicles with an engine capacity greater than 2.5 liters, he said.
Taxes on vessels will remain unchanged while taxes on motorcycles, three-wheel motor vehicles and low-speed trucks, mainly used in rural areas, will be reduced or remain unchanged, according to the draft law.
"The main aim of the law is to reduce energy consumption through effective fiscal and tax measures," said Jia Kang, director of the Research Institute for Fiscal Science at the Ministry of Finance.
"The larger engine capacity a car has, the more tax the owner will pay, therefore the law will be effective in improving energy efficiency and cutting emissions," said Chen Shaoqiang, also an institute researcher.
The institute’s deputy director, Liu Shangxi, told China Daily that reforming the collection of vehicle and vessel tax, which accounts for a small portion of local government tax revenue, could play a positive role in the national tax framework.
The law will be part of the government’s fiscal reform measures over the next five years, experts said, by broadening the tax category and improving local government revenue to reduce dependence on land sales.
However, automobile industry analysts said that it is still too early to say if the new law will substantially improve energy savings and cut emissions.
"Engines with a smaller capacity do not mean lower emissions," said Jia Xinguang, an independent auto analyst.
It could instead raise costs for many car users.
"It’s not an effective weapon to limit the sales of vehicles with large engine capacity, as buyers of these vehicles often do not care about prices or taxes," said Zhong Shi, another independent auto analyst.
He noted that in 2008 the government tried to curb the sale of these vehicles by raising consumption tax.
"They (the policymakers) should realize that the use of fuel, not the capacity of the engine, is key to energy consumption," said Zhong.
One industry expert said the government might include the tax in fuel prices.
"The government may consider adding the vehicle and vessel taxation into fuel prices to curb vehicle use. You have to pay more tax if you drive more," said Zhu Junyi, director of the Shanghai Automobile Industry Research Center.
Currently, the annual tax on passenger vehicles in China ranges from 360 yuan ($54) to 660 yuan, based on the 2007 law.
China has 199 million motor vehicles. The nation sold 13.6 million cars last year, overtaking the United States as the world’s biggest auto market.
New electric car strategy proposed
China has finished work on its automobile proposal that will become part of the 12th Five-Year Plan (2011-2015), and new electric vehicles with lithium ion batteries are a top priority, China News Service reported on Monday.
According to the plan, hybrid and electric vehicles will be major focuses during the five years. China is planning to become the world’s biggest clean energy electric car production country in future years.
Sources from the China Association of Automobile Manufacturers told the news agency that the plan will set an objective to sell 1 million electric cars by 2015 in the country.
Officials from the Ministry of Industry and Information Technology told the media earlier this year that the central government will invest 100 billion yuan ($15 billion) to develop electric cars in the next 10 years, according to the report.
Xinhua News Agency reported on Monday that China’s top legislature is starting to review a draft law on vehicle and vessel taxation. The draft law describes provisions for reducing taxes on energy-saving or clean energy-powered vehicles and vessels. The State Council, China’s cabinet, approved the draft on Oct 12.
Gasoline, diesel prices rise
Gasoline and diesel retail prices rose by around 3 percent on Tuesday to reflect global market fluctuations, according to the National Development and Reform Commission (NDRC), the country’s top economic planner.
Gasoline prices would go up by 230 yuan ($34) per ton, and diesel prices by 220 yuan per ton, the NDRC said on Monday. Following the adjustments, gasoline prices are now 7,420 yuan per ton with diesel trading at 6,680 yuan per ton. It is the second price hike this year.
The move is in line with global oil prices that have increased by more than the 4 percent threshold since the end of September, an NDRC official, who declined to be named, said.
Under a 2009 pricing mechanism, the government considers adjusting domestic refined oil prices when international oil prices change more than 4 percent within 22 working days.
Under the system, China adjusted fuel prices three times this year, with two price hikes and one reduction.
The government adjusted oil prices eight times in 2009.
"The latest price rise is moderate and within market expectations," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.
Compared to coal that accounts for around 70 percent of the country’s energy consumption, oil plays a smaller part in the mix and the hike will not dramatically affect the consumer price index (CPI), said Lin.
The NDRC said on Monday that a new price mechanism is expected to be finalized by the end of the year.
"The new regime will be more flexible in reflecting market changes and reducing manipulations, eventually forming a market-oriented mechanism," the NDRC official said.
China is expected to see a further slowdown in energy demand growth in the fourth quarter due to conservation policies, the National Energy Administration (NEA) said on Monday.
Electricity use, a barometer of the economy, will continue to see slow growth in the fourth quarter. However, it does not mean a slowdown in the economy, Wang Siqiang, an official with the NEA, told a press conference on Monday.
Figures for electricity use will still increase in the fourth quarter, he said.
A weakening in the growth of energy demand is in line with the government’s increasing efforts in conservation, said Wang. China aims to reduce energy consumption per unit of gross domestic product (GDP) by 20 percent between 2006 and the end of this year.
China consumed 349.8 billion kWh of electricity in September, a month-on-month drop of 12 percent, with heavy industry using 193.9 billion kWh of electricity, a monthly drop of 17.3 percent, the NEA said.
China’s economy grew 9.6 percent in the third quarter, the lowest rate in a year, as the government reined in credit growth, clamped down on property speculation and chased energy efficiency and pollution targets.
China’s net coal imports are expected to be 120 million tons this year, up by 16 percent from a year earlier, according to the NEA.
The country is expected to produce 200 million tons of crude oil, and process 390 million tons of oil this year, it added.
Natural gas supplies may be "tight" this winter and in the following spring, according to the NEA.
The administration has ordered PetroChina, the country’s biggest oil and gas producer, to operate its gas fields at full capacity during the winter. Sinopec and CNOOC have also been told to increase gas supplies, said Wang.