Vehicle and Vessel Tax Policy Revised from 2027: Some New Energy and Fuel-Efficient Models Lose Preferential Treatment

Starting January 1, 2027, the policy halving the vehicle and vessel tax for energy-efficient vehicles, as well as the exemption policy for pure electric commercial vehicles, plug-in (including range-extended) hybrid electric vehicles, and fuel cell commercial vehicles, will be terminated. Pure electric passenger cars and fuel cell passenger cars will remain outside the scope of vehicle and vessel taxation. This policy was jointly issued by the Ministry of Finance, the State Taxation Administration, and the Ministry of Industry and Information Technology, aiming to optimize the mechanism for allocating vehicle-related taxes and fees. China has implemented preferential vehicle and vessel tax policies since 2012, significantly accelerating the growth of the new energy vehicle (NEV) market, which now boasts a market penetration rate exceeding 50%. As the industry matures, these incentives are being gradually phased out to uphold tax equity. Following implementation of the policy, the annual increase in vehicle and vessel tax will vary by engine displacement for internal combustion engine vehicles: vehicles with 1.5L engines will see an increase of RMB 300–420, while those with 2.0L engines will incur an additional RMB 360–660. These adjustments apply to both newly purchased and already registered vehicles. Although taxes will rise, the impact remains limited relative to overall vehicle ownership costs. The adjustment affects different vehicle types unevenly: lower-priced plug-in hybrid electric vehicles (PHEVs), having lost their tax advantages, will see diminished cost competitiveness; conventional hybrid electric vehicles (HEVs) will be less affected and may gain greater market opportunities; pure electric passenger cars remain unaffected, further enhancing their economic appeal. It should be noted that revenue from the vehicle and vessel tax is allocated into local general public budgets and is not earmarked specifically for road maintenance. Road construction and maintenance are funded through separate dedicated sources and should not be conflated with vehicle and vessel tax revenues. Overall, this adjustment represents a significant step toward aligning fiscal and tax policies with the current stage of NEV industry development. Future reforms of the automotive taxation system are expected to become more refined, better guiding consumers toward green and low-carbon mobility choices.