Smaller vehicles will face much lower taxes, with the smallest actually seeing tax breaks under the new law. The move is intended to offer incentives to buy smaller cars and penalties for those that choose larger, and ostensibly more polluting, models. The highest tax bracket applies only to vehicles with engine displacement larger than 4.0L. Engines sized from 2.5L to 4.0L will be charged 25% in sales tax, an increase from the present rate of 15%, reports the AP. Vehicles between 1.0L and 2.5L face a tax ranging between 5% and 9%, while the lowest tax bracket applies to cars with engines smaller than 1.0L, and will add just 1% to the car's price, a reduction of 2%.
The impact the incentive/disincentive program will have is at this point difficult to quantify, but in any demand-driven market, such substantial fees will almost certainly drive consumer preference away from the largest cars. In the mid-to-large car range, however, the tax rates still make it a trade-off game - they just skew the figures a bit higher. Nevertheless, the tax scheme is being hailed as a positive step. So far, measures to reduce use and limit access to certain parts of major cities have seen little success.
A possible criticism of the program lies in the incentive to purchase small cars, which could end up putting even more cars on the road than the millions currently clogging the streets of China's cities, creating wreaths of brown haze that endanger the health of all who live within. Combined with the Chinese government's price protections on fuel, the tax scheme has the potential to backfire dramatically.