Lithium Batteries to Be Subject to Consumption Tax Again from 2026 as EV Tax Incentives Phase Out

Starting September 1, 2026, primary lithium batteries, lithium-ion storage batteries, and other battery products will be subject to consumption tax again in a phased manner. Previously, lithium-ion storage batteries used in electric vehicles (EVs) were exempt from consumption tax, while conventional batteries were taxed at a 4% rate. This adjustment, jointly announced by the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration, aims to level the tax burden between electric and internal combustion engine vehicles and steer resources toward cutting-edge technologies through fiscal policy. China has become the world’s largest producer and consumer of lithium-ion batteries, with a mature industrial chain and accelerating technological advancements. Against this backdrop, reinstating the consumption tax on lithium-ion batteries is seen as a key step toward standardizing the tax burden on new energy vehicles (NEVs). Meanwhile, emerging technologies such as sodium-ion batteries and solid-state batteries—which have not yet reached large-scale commercial production—will enjoy a multi-year tax exemption window, reflecting targeted support for nascent industries. Tax incentives for NEVs are being phased out in an orderly fashion: Starting January 1, 2025, the vehicle purchase tax for NEVs will shift from full exemption to a 50% reduction, with a tax rate of 5% and a maximum tax saving of RMB 15,000 per vehicle. Furthermore, beginning January 1, 2027, the preferential policy of halving the vehicle and vessel tax for fuel-efficient vehicles, as well as the full exemption for pure-electric commercial vehicles, will be terminated.