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December 2, 2016

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Extra 10% tax levied on ultra high-end cars

CHINA has imposed an extra 10 percent tax on ultra high-end cars costing over 1.3 million yuan (US$190,000) such as Lamborghini and Ferrari, the government said, in a bid to rein in lavish spending and to reduce emissions.

The new tax took effect yesterday and was intended to “guide rational consumption” and promote energy-efficient vehicles, the Ministry of Finance said in a statement.

Cui Dongshu, secretary-general of the China Passenger Car Association, said: “The tax increase is a display of the government’s attitude of advocating frugality.”

China has overseen a sprawling campaign against graft and encouraged thrift among the country’s political and economic elites, targeting showy displays of wealth.

China already taxes imported vehicles at a high rate, slapping a 25 percent tax on all foreign cars shipped to China.

The duties — and increased competition from cheaper domestic marques — have driven overall car imports down two years in a row, with 850,000 vehicles imported in the first 10 months of the year, down 6.4 percent from 2015, according to customs statistics.

But ultra high-end brands such as Ferrari have done well, with the Italian sports-car maker seeing a 26 percent surge in its second-quarter sales this year, with 160 units delivered.

The new tax will potentially affect pricing for top of the range models from carmakers like BMW, Mercedes-Benz and Audi, as well as super high-end brands like Ferrari, Aston Martin and Rolls-Royce.

However, carmakers played down the impact, saying the tax hike would only impact a small number of models, while executives said wealthy Chinese buyers were unlikely to be put off by a relatively marginal price hike on already costly cars.

“The majority of our business will not be impacted,” a Beijing-based BMW spokesman said. But because this was just announced, “we are still evaluating to see what impact we might see on our business.”

He added that only “a small portion” of the cars BMW sells in China were priced above 1.3 million yuan.

Audi said in a statement that cars above 1.3 million yuan made up less than 1 percent of its deliveries in China. “Emotion and status are significant drivers for the upper premium segment. The effect on deliveries should be limited as the new tax rate concerns all manufacturers,” the carmaker said.

Mercedes-Benz did not respond to requests for comment.

Passenger vehicle sales in China, the world’s largest auto market, surged by an average of over 12 percent annually from 2010 to 2015, but an economic slowdown has cut the speed, with growth falling to 4.7 percent last year with total sales of 24.6 million.


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