Three central government ministries have jointly announced the termination of tax incentives for new-energy commercial vehicles, a policy that has been in place for over a decade.

The Ministry of Finance, the State Taxation Administration, and the Ministry of Industry and Information Technology have issued a notice stating that, effective January 1, 2027, the policy of halving the vehicle and vessel tax for energy-efficient vehicles will be cancelled. Furthermore, the policy of fully exempting the vehicle and vessel tax for pure-electric commercial vehicles, plug-in hybrid (including range-extended) commercial vehicles, and fuel-cell commercial vehicles will also be terminated.

The vehicle and vessel tax is an annual property tax levied on the owners or managers of vehicles and vessels. Since 2012, to support the development of the new-energy vehicle industry and promote energy conservation and emission reduction, China has implemented a policy of halving the tax for qualifying energy-efficient vehicles and fully exempting it for qualifying new-energy vehicles.

Following the implementation of this policy adjustment, taxpayers who own or newly acquire energy-efficient vehicles, pure-electric commercial vehicles, plug-in hybrid (including range-extended) commercial vehicles, or fuel-cell commercial vehicles will be required to pay the vehicle and vessel tax according to regulations.

It is important to note that pure-electric passenger cars and fuel-cell passenger cars are not affected by this policy change. As these vehicle types have no engine displacement, they fall outside the scope of the Vehicle and Vessel Tax Law and will continue to be exempt from the tax.

The decision to phase out these incentives comes as China's new-energy vehicle industry has experienced robust growth, leading to a rapid increase in the number of such vehicles on the road. This expansion has highlighted issues such as the impact on tax fairness and the diminishing role of taxation in regulation, thereby increasing the necessity to withdraw the supportive tax policies.

Industry insiders note that the vehicle and vessel tax amount is relatively modest. For example, the annual tax for a passenger car with a 1.5-liter engine displacement is 420 yuan in Beijing and 300 yuan in Shanghai and Guangdong province. The policy adjustment is seen as conducive to promoting tax equity and guiding the healthy development of the new-energy vehicle industry.