Chinese tax incentive on small cars to end

The cost of buying a small car in China will go up in the new year. From January 1st, vehicles with an engine of 1.6 litres or less will have a 10 per cent tax placed on them, instead of 7.5 per cent. The government is hoping to take some of the heat out of the economy, by slowing down the rush for cars.

The purchase of cars with smaller engines makes up 60 per cent of car sales in China. Increased demand for vehicles has seen the country overtake America as the world’s largest auto market. In 2009, sales tax on smaller cars was 5 per cent and growth in the sector was 53 per cent. In the first 11 months of 2010, the market grew 35 per cent.

Despite the incentive to buy small being scrapped, its doubtful the move will stifle the Chinese market, where car ownership per capita remains relatively low.

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