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China readying new taxes on gas guzzlers
New York Times, 26 August '05
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Alarmed by high world oil prices and sporadic shortages of gasoline and diesel in big Chinese cities this summer, China's leaders are drafting plans to impose steep taxes on cars and sport utility vehicles with large, gas-guzzling engines.

The taxes will add as much as 27 percent to the price of vehicles with large engines, notably sports cars and large sport utility vehicles, auto industry officials and people advising the government on the plan said. At the same time, taxes may be cut slightly for models with the smallest, most efficient engines, although the details are still under discussion, they said.

The taxes follow China's adoption in July 2005 of fuel-economy standards that are more stringent than those in force in the United States. The Bush administration announced plans on recently for phasing in tougher fuel-economy rules with the 2008 through the 2011 automobile model years, but the Chinese government has already imposed even stiffer standards to take effect in 2008 and 2009.

The planned taxes in China are part of a much broader effort by Beijing to improve its energy security. Efforts by state-owned oil companies to buy foreign businesses have drawn the most attention, most notably Cnooc's unsuccessful US$ 18.5 billion bid this summer for Unocal and China National Petroleum's recent US$ 4.18 billion deal to buy PetroKazakhstan.

But China also has been focusing on energy efficiency in 2005. Zhang Guobao, vice minister of the State Development and Reform Commission, said last week that the next Five Year Plan, for 2006 to 2010, would put energy conservation ahead of expanding energy supplies, sources said.

China's State Council, or cabinet, is in the final stages of drafting the new vehicle taxes, a complex process involving many government agencies, said He Dongquan, the transportation program officer in the Beijing office of Energy Foundation, a nonprofit group that has worked with the government on the issue. "I'm quite sure it will be adopted in the next one or two months," he said.

Feng Fei, the director of the industry department at the State Council's Development and Research Center, said in late June 2005, that his agency had submitted a plan calling for excise taxes on auto manufacturers to increase steeply for vehicles with large engines that burn more gasoline.

"The taxation change is mainly aimed at encouraging car owners to consume less oil and at cushioning environmental pressures," Feng said. With rising gasoline prices already pushing consumers toward more fuel-efficient models, automakers appear to be offering little resistance to the tax changes.

"The move is consistent with energy conservation plans, and we believe it is the right way to go in achieving energy efficiency in society." said Li Fengzhen, the chief financial controller of Great Wall Automobile Holding, a maker of midsize SUVs that would face slightly higher taxes under the plan.

The track record of promoting energy-efficient vehicles through gas-guzzler taxes has been mixed in other countries, said Paul Blokland, the director of Segment Y Automotive Intelligence, a consulting firm in Bangalore, India, that tracks automakers in Asia. Very affluent consumers who can afford big vehicles with large engines tend not to be discouraged by extra taxes on the initial price of the vehicle, he said.

Another analyst said that Chinese buyers, unlike American buyers, already tend to choose vehicles with smaller engines so increased taxes will fall on a small share of the entire market.

The multinational that may face the biggest burden from the taxes is probably DaimlerChrysler, which sells Jeeps and big Mercedes sedans in China. Grand Cherokees with 4- and 4.7-litre engines, not especially large by American standards, would fall in the highest category of excise taxes. Trevor Hale, a DaimlerChrysler spokesman in Beijing, said that the automaker had not seen the details but supported the Chinese government's general desire to improve fuel economy.

China now imposes an excise tax of 3, 5 or 8 percent on cars - those with larger engines pay higher rates - while taxes on SUVs and minivans are 3 or 5 percent. Under the new rules now nearing completion, the taxes will range from 1 or 2 percent for vehicles with the smallest engines and up to 20 percent for vehicles with engines of 4 litres or more, said An Feng, the director of the Auto Project on Energy and Climate Change, a nonprofit group in Beijing that has advised the government on fuel-economy policy. The group has not been directly involved in drafting the new tax regulations.

In addition, An said, the government has been working on a new gas-guzzler tax similar to the American tax, but including SUVs and minivans, which are exempt in the United States. He said that the tax would vary from 5 to 15 percent, depending on engine size, and would apply to vehicles that fall short of the fuel-economy standards imposed since July 2005.

Chinese vehicle taxes largely exclude pickup trucks, which are separately regulated and do not sell well in China. Also, minivans in China tend not to have large engines and so may not face much, if any, tax increase. Chinese officials also talked earlier in 2005 of imposing a fuel tax once world oil prices started to decline, basically holding domestic gasoline and diesel prices at whatever peak they might reach. High prices would encourage long-term attention to efficiency, the officials reasoned.

But Chinese officials have been silent on the topic of a fuel tax lately, as they have had to cope with dissatisfaction, from taxi drivers in particular, over the price increases that already have been imposed.