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September 24, 2009

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Boost in auto sales offsets tax losses

CHINA lost 11.4 billion yuan (US$1.67 billion) of revenue in the first eight months of this year after halving the sales tax on new energy-efficient cars as part of efforts to revive the auto industry, the State Administration of Taxation said yesterday.

But the carrot seems to be working. Auto sales rose in the same period by almost a third.

"The real turnaround came in July when auto sales boomed in the traditionally low season for car purchases, buoyed by positive consumer sentiment," the administration said.

The auto incentives are part of a broad national policy to stimulate consumer spending to offset a slump in exports since the global financial crisis.

China cut the tax individuals pay on new cars with engine capacities of 1.6 liters or less to 5 percent from 10 percent on January 20. The tax break will end on December 31.

In addition to boosting auto sales, the tax cut is aimed at encouraging the use of greener cars as part of China's commitment to make its economic growth more ecologically friendly.

The China Association of Automobile Manufacturers said vehicle sales in the first eight months rose 29 percent year on year to 8.33 million units.

It said China's car sales were expected to top 10.2 million this year, overtaking the United States as the world's biggest auto market.

The robust sales are helping to offset the government's revenue shortfall.

Collections from the tax in August jumped 30 percent from a year earlier after a 13-percent gain in July.

China's tax agency said it took in 70.6 billion yuan from the car tax in the first eight months.

The domestic auto industry has been hard hit by the global financial crisis. Auto sales plummeted in August 2008 and again last October after years of strong growth.

Analysts have said they believe the industry has turned a corner, thanks in large part to the government incentives.

Car makers sold 1.13 million vehicles in August, up 82 percent from a year earlier. The nation's monthly auto sales have exceeded 1 million units since March.

The auto-purchase tax accounted for about 2 percent of the central government's revenue last year.


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