Three government departments have announced an adjustment to preferential policies for the vehicle and vessel tax, which will take effect from January 1, 2027.

The policy of halving the vehicle and vessel tax for energy-efficient vehicles will be discontinued. Furthermore, the exemption from this tax for pure electric commercial vehicles, plug-in hybrid (including extended-range) vehicles, and fuel cell commercial vehicles will also be terminated.

Pure electric passenger cars and fuel cell passenger cars are not subject to this policy change, as they fall outside the taxable scope defined by the Vehicle and Vessel Tax Law due to their lack of engine displacement.

The vehicle and vessel tax is an annual property tax levied on the owners or managers of vehicles and vessels. To support the development of the new energy vehicle industry and promote energy conservation and emissions reduction, China has implemented policies since 2012 that halve the tax for qualifying energy-efficient vehicles and exempt qualifying new energy vehicles from the tax entirely.

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

As mentioned, pure electric passenger cars and fuel cell passenger cars remain unaffected by this change and will continue to be exempt from the tax, as they are not classified as taxable items under the current law.

In recent years, with the rapid growth of China's new energy vehicle industry and its expanding ownership base, the tax incentives have increasingly highlighted issues such as impacting tax fairness and diminishing the tax's regulatory function. Consequently, the necessity to phase out these supportive policies has grown.

Industry experts note that the vehicle and vessel tax amount is relatively modest. For instance, 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. This policy adjustment is seen as conducive to promoting tax equity and guiding the healthy development of the new energy vehicle industry.