The Ministry of Finance and three other ministries have confirmed that new energy vehicles will continue to be exempted from purchase tax. The new policy will take effect from 2018 to 2020, Caixin reported.
The current purchase tax-free policy for electric cars started in September 2014, and was to expire at the end of 2017.
Li Ping, the co-founder and vice chairman of CATL, a Fujian-based battery producer, openly suggested to the government that the policy be extended.
Li said a new energy car is currently priced at 150,000 yuan (US$22,873) to 200,000 yuan, however, the price would rise by a considerable 15,000 to 20,000 yuan.
Also, the cancellation of the exemption could have a greater impact on the development of electric cars than withdrawing financial subsidies, Li added.
Since 2001, China began to levy a car purchase tax at a tax rate of 10%. In order to encourage the development of new energy vehicles, the Chinese government has allowed them to be exempted from purchasing taxes and also benefit from financial subsidies.