Reverse gear: China car dealers push for tax cut as auto growth stalls

Beijing/shanghai:China’s top auto dealers’ association has asked the government to halve taxes on car purchases to revive faltering sales, sources said, as worries grow the country’s auto market could shrink this year for the first time in decades.
The China Automobile Dealers Association (CADA) submitted documents last month to the country’s finance and commerce ministries proposing the 10 percent auto purchase tax be halved, two people at the industry body told Reuters.
The influential body has made proposals in previous years that have helped shape auto policy. When China last cut the purchase tax three years ago, car sales soared in the world’s biggest auto market that is a key battleground for global car makers from General Motors to Toyota Motor.
CADA’s initiative comes as Beijing itself seems concerned about China’s auto industry, an important barometer of the health of the world’s second largest economy. It has launched stimulus measures as a bruising trade war with the United States is pressuring economic growth.
One of the people said the commerce ministry met with automakers this week to discuss the market and ways to spur growth, which included purchase tax cuts – a signal the central government may be warming to the idea.
“The overall car market is weak this year. Dealers I know are struggling to maintain their sales volumes as they feel pressure from both car makers and cash flow,” said the second person, a CADA official.
He confirmed the industry body had proposed to the two ministries to lower the purchase tax rate. “We asked for a 50 percent cut but any reduction could help.”
The first person, a CADA insider familiar with the plans, said the association was seeking a 50 percent cut to the purchase tax on cars with engines of 2.0 litre capacity or below, similar to the tax rebate on smaller-engine cars that helped drive rapid growth in 2016.
This person added it was unclear what the finance ministry and commerce ministry would do in response, but that the latter had met with car makers earlier this week to “discuss the performance of the auto market, sales trends and taxation”.
China’s Ministry of Finance and Ministry of Commerce did not immediately respond to requests for comment. The CADA insiders did not want to be identified because of the sensitivity of the matter.
CADA secretary general Xiao Zhengsan said the market might see a slight decline this year, but measures like promoting the rural car market or adjusting VAT for second-hand cars may bolster sales. He did not comment on the purchase tax cut proposal.
A spokesman for the China Association of Automobile Manufacturers (CAAM), Xu Haidong, said the nation’s top auto industry body had not proposed cutting the purchase tax.