The long-awaited auto consumption tax, which imposes a higher tax on the purchase of larger-engine vehicles, is expected to be issued by the end of this year, according to an official from the Ministry of Finance.

"The new rule was still under second round of discussion after collecting suggestions from related departments," said an official from the country's top government body overseeing financial rules, who asked to be unidentified.

"We still need some time to revise the provisions and will ask for experts' opinions again before we decide on the final version," the official said in response to speculation the new rule would be unveiled right after the National Day holiday. Discussions on the rule have been going on for nearly one year.

Previous reports had said the government would raise the tax rate to as high as 20 percent on purchase of cars whose engine capacity is over 4 liters.

Currently, buyers of cars with engines larger than 2.2 liters have to pay 8 percent of the car price as the consumption tax while cars ranging from 1 to 2.2 liters are charged 5 percent, and cars with smaller engine capacities are levied 3 percent.

The new rule will restrain the use of large oil-consuming vehicles and encourage people to buy autos with smaller engine capacities in a move to save energy and for fuel efficiency.

Automakers and auto dealers have already started to take measures to better adapt to the change and hedge uncertainty.

An internal document released by Shanghai General Motors Corp to its dealers said the new consumption tax is likely to add three more grades — engines from 2.2 liters to 3 liters will have to pay 9 percent while those from 3 liters to 4 liters will be charged 14 percent and the top rate of 20 percent will be applicable to engines over 4 liters.

The document also mentioned that Shanghai GM would offer more preferential discounts and other promotions to boost sales.

The new tax is more likely to affect the sales of medium-to-high autos as well as imported luxury cars since engines in domestically produced autos are mostly under 3 liters.

"There are fewer than 10,000 units of large oil-consuming vehicles with engine power over 3 liters nationwide and most of them are imported upscale autos like the BMW 750 and Mercedes Benz S600," said Li Haifeng, general manager of Tianze Auto Sales Co.

"To owners of domestically produced autos, a 1-percent increase on the oil consumption tax is not a big deal and consumers could easily afford that," he added.

On the other hand, sports utility vehicles would also be affected by the change as most of them require bigger engines of more than 3 liters to give them the extra power.

(China Daily October 10, 2005)