The Chinese Ministry of Finance and State Administration of Taxation has issued a notice that the automobile consumption tax will be adjusted from September 1, 2008.

Consumption rate of automobiles with engine capacities between 3.0L and 4.0L (included) will increased from 15% to 25%; that of air displacement over 4.0L will raise from 20% to 40%; while consumption rate for automobiles with engine capacities under 1.0L (included) will be reduced from 3% to 1%.

In recent years, the total number of automobiles has been increasing rapidly, with a great demand for petroleum and increased air pollution. In addition, the increasing dependence on foreign oil is threatening the energy security of China. The tax adjustment will promote emission reduction and energy conservation work in automobile industry.

The adjustment aims to restrain the production and consumption of large-enined vehicles and encourage small-engined autos, which will reduce the oil consumption and air pollution.

The tax adjustment is likely to have the biggest impact on automobile manufacturers from the European Union and Japan, as, according to statistics from the Chinese customs large-engined vehicles imported into China are typically luxury cars from those two regions.