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China to raise tax on small cars to 7.5% in 2017, sources say
Bloomberg | 2016/12/16

China will raise the sales tax on small cars to 7.5 percent, curbing an incentive that has propped up the auto industry, according to knowledgeable sources.

The tax rate is less than the 10 percent originally scheduled to take effect from January. But it is an increase from the 5 percent rate introduced in October 2015.

"This is worse than the market's expectation of keeping the tax at 5 percent, so some people are disappointed," said Ka Leong Lo, an analyst in Hong Kong with Kim Eng Securities. "Some others simply use this as an excuse to reduce their exposure in the auto sector because they have made profits this year on auto stocks."

Last year, China's government halved the levy on purchases of vehicles with engines up to 1.6 liters to stimulate car sales after the economy began to cool. 

Auto sales promptly rebounded and surpassed 2015's total in November, clinching a 26th consecutive annual gain.

Carmakers had lobbied for the lower levy to be made permanent, citing concerns that sales would slump next year after consumers brought forth their purchases.

Consumers bought 21.1 million passenger vehicles in the first 11 months of the year, more than the 20.6 million purchased in all of 2015, according to the China Passenger Car Association. The last time China's car market shrank was 1990.

Sales growth may moderate to 3 percent in 2017, from about 15 percent this year, Lo said in an emailed report.

In November, Geely posted the fastest sales growth among major local automakers with its deliveries almost doubling to 102,422 vehicles, while Guangzhou Auto and Great Wall recorded sales increases of more than 30 percent.

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