China to Levy Consumption Tax on Lithium-ion Batteries and Solar Cells
Quick Look
China's Ministry of Finance announced a new consumption tax on lithium-ion batteries and solar cells, effective September 1 and April 1 respectively, starting at 2% and rising to 4% a year later, impacting manufacturers and the electric vehicle sector.
AI-generated summary
Why It Matters
China introduced a 4% consumption tax on batteries in 2015 but exempted lithium-ion batteries and solar cells to support their nascent industries. This new policy signals Beijing's confidence that these sectors have matured beyond needing preferential tax treatment.
China will levy a consumption tax on lithium-ion batteries and solar cells for the first time in more than a decade, the Ministry of Finance announced on Friday. The tax would be set at 2 per cent for lithium-ion batteries – used in electric vehicles and energy storage – from September 1. Solar cells, however, would not be taxed at 2 per cent until April 1. Both rates are scheduled to rise to 4 per cent a year after their respective start dates.
China introduced a 4 per cent consumption tax on batteries in 2015, but made lithium-ion batteries and solar cells exempt to support the nascent industries.
“Subsidies were needed at the start. They are not needed now,” said Jia Xinguang, a veteran analyst of China’s auto industry, who saw the move as a sign of Beijing’s confidence that the sectors had outgrown preferential tax treatment.
The policy change would come at a cost to manufacturers, analysts said.
A typical electric car in China carries a battery pack with 50 to 100 kilowatt-hours of energy. With battery cells currently priced at around 0.35 to 0.40 yuan per watt-hour, the initial levy would lift that to roughly 0.36 to 0.41 yuan per watt-hour, adding as much as US$147 per car once the rate reaches 4 per cent, according to calculations by Cui Dongshu, secretary general of the China Passenger Car Association (CPCA).
What to Watch
AI outlook — possibilities, not facts
China will levy a 2% consumption tax on lithium-ion batteries starting September 1.
Very likely · Within months
China will levy a 2% consumption tax on solar cells starting April 1.
Very likely · Within months
Both tax rates will rise to 4% a year after their respective start dates.
Very likely · Within months
Open Questions
- How will manufacturers absorb the increased costs?
- Will the new tax lead to higher prices for consumers?
- How will this affect China's competitiveness in these industries?
