Tuesday 9 December 2008
Consumption Tax Expected to Dent Demand for Big Cars
The hefty increase in the country’s fuel consumption tax proposed to take effect from January 1 could dent demand for big cars on the mainland and see drivers reducing the distances they travel. It will also prompt mainland carmakers to develop more fuel-efficient vehicles, analysts say.
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Consumption Tax Expected to Dent Demand for Big Cars
Kandy Wong
8 December 2008
The hefty increase in the country’s fuel consumption tax proposed to take effect from January 1 could dent demand for big cars on the mainland and see drivers reducing the distances they travel. It will also prompt mainland carmakers to develop more fuel-efficient vehicles, analysts say.
“I’ll consider buying a smaller-engined car next time,” said lawyer Gong Chenhua, who now drives a Ford Mondeo. “I will also probably drive less and use more public transport.”
Under the new fuel price mechanism planned for next year, Mr. Gong will have to pay “a few thousand yuan more” in annual running costs if he keeps driving frequently.
As part of a package of measures to reform the retail fuel price regime, the National Development and Reform Commission called for public feedback on plans to raise the fuel consumption tax.
The commission intends to raise the tax for petrol from 20 fen (22 HK cents) per litre to 1 yuan and the diesel consumption tax from 10 fen to 80 fen per litre. The plan to shift the tax focus to consumption will lead to a reduction in the road maintenance fees levied on motorists.
Excluding the effects of lower road fees, the higher consumption tax would see a big increase in fuel bills if drivers do not reduce consumption.
Calculations show a car owner with a 1.6-litre engine that consumes about 2,190 litres of petrol every year at the current price of 6.37 yuan per litre will spend an additional 1,752 yuan per year on fuel.
Motorists have until December 12 to comment on the changes, which include a proposal to allow fuel prices to adjust more freely in line with crude oil prices while guaranteeing refiners’ profit margins set at about 4 per cent above refinery gate prices, according to Reuters.
“Surely many people will choose to cut down on their driving after the new fuel price policy is implemented,” said marketing manager Eric Lee, who drives an Audi A4. “If I drive 313km less every year, I won’t need to pay more for petrol. In fact, I’m happy with the new proposal because it’s fair to drivers. The more you drive, the more you pay.”
Beijing has mulled an overhaul of its retail fuel policy for more than a decade but elected to put changes on hold in November last year because of the then high price of crude oil. The price of crude has subsequently fallen sharply and last week fell to a four-year low below US$40 a barrel.
Industry players, such as the chairman of small carmaker Geely Automobile Holdings, Li Shufu, and the general secretary of Passenger Car Association, Rao Da, had often urged the government to launch the fuel tax as a way to alter buyers’ appetites for large cars.
The Ministry of Finance responded by doubling the vehicle consumption tax in August on large-engine cars of 4.1 litres to 40 per cent while the tax on small cars with 1-litre engines or smaller was lowered to 1 per cent from 3 per cent.
“On top of the new policies, it’s also important to see how mainland carmakers tie into the vision of the government by producing better-quality fuel-efficient vehicles to lure customers,” said analyst Matthew Kong at Fitch Ratings.
Minister of Science and Technology Wan Gang said last month the central government would launch a massive programme to promote environmentally friendly vehicles from next year, such as hybrids, starting with the country’s public transport system.
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