EV Tax Breaks Wind Down: Battery Excise Tax Imposed, Hybrid Vehicle Taxes Restored

Starting September 1, 2024, lithium-ion batteries will be subject to a 2% consumption tax, which will increase to 4% from September 1, 2025. Newer technologies such as sodium-ion and solid-state batteries will remain exempt from this tax until the end of 2028. The consumption tax is levied at the production, commissioned processing, or importation stage and paid by enterprises, potentially affecting final vehicle prices indirectly. It remains unclear whether automakers that produce their own batteries or purchase cells for assembly will face double taxation—this awaits clarification in detailed implementation rules. Additionally, beginning January 1, 2027, plug-in hybrid electric vehicles (including range-extended models) and fuel cell commercial vehicles will no longer be exempt from the vehicle and vessel tax, and energy-efficient vehicles will no longer qualify for the 50% reduction. Battery electric vehicles (BEVs), which lack internal combustion engines and thus have no engine displacement, fall outside the scope of the vehicle and vessel tax and will remain unaffected. These adjustments come against the backdrop of rapidly rising new energy vehicle (NEV) penetration, which exceeded 60% in the first half of 2024, while sales of conventional fuel-powered vehicles declined by 26% year-on-year. As NEVs become heavier on average, the disparity between the increased road wear they cause and their lack of contribution to corresponding road maintenance costs has grown more pronounced. Earlier in 2024, the purchase tax exemption for NEVs was already scaled back from full exemption to a 50% reduction. The latest tax policy changes are seen as part of broader efforts to achieve "parity between fuel and electric vehicles," aiming to ensure tax equity and steer industry competition beyond finished products toward the entire industrial chain—including batteries and supply chains.