Experts Urge Including New Energy Vehicles in Consumption Tax and Allocating Revenue to Local Governments

In an article published on July 15, Professor Liu Yi of Peking University’s School of Economics and her co-authors proposed fully incorporating new energy vehicles (NEVs) into the “passenger cars” category of the consumption tax and allocating the resulting additional fiscal revenue to local governments. Currently, NEVs—except for ultra-luxury passenger cars priced above RMB 900,000—are excluded from this tax category, primarily due to early-stage industrial support policies. By 2025, NEVs accounted for 50.8% of domestic vehicle sales, indicating that the industry has entered a phase of large-scale development, with significantly enhanced supporting capabilities, product competitiveness, and market penetration. The authors argue that continuing the consumption tax exemption is inconsistent with the principles of tax neutrality and fairness and undermines the establishment of a fiscal incentive mechanism aligned with the industry’s current stage of development. The article suggests that including NEVs in the consumption tax base and assigning the revenue to local governments based on the principle of consumption location would help broaden local tax sources, strengthen local fiscal capacity, and achieve institutional balance in benefit distribution between production and consumption regions. This approach would also curb redundant investments and disorderly competition, thereby promoting the industry’s transition toward high-quality and high-efficiency development. Specific recommendations include: first, refining the automobile consumption tax system to ensure tax parity between fuel-powered vehicles and NEVs; second, transferring newly generated consumption tax revenues to local governments and sharing them according to the consumption-location principle; and third, improving the taxation system during the vehicle ownership phase by exploring usage-based cost-sharing mechanisms, such as levies based on mileage driven or electricity consumed.