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I. Trends in China's Auto Market
China's automotive market is currently undergoing a significant transformation, characterized by both rapid diversification and a shift towards higher-end segments. The new energy vehicle (NEV) sector is experiencing robust growth, with pure electric and fuel cell vehicles emerging as key market drivers. NEVs are projected to be the primary growth engine for China's auto market in 2025, with anticipated sales reaching 16.5 million units, representing a growth rate of nearly 30%.
Conversely, the super luxury car market is facing a downturn. In the first half of 2025, sales of super luxury cars (defined as having a retail price exceeding 1.017 million yuan) totaled 37,000 units, marking a substantial year-on-year decrease of 49%. Within this segment, traditional internal combustion engine vehicles continue to dominate, accounting for approximately 90% of sales (33,000 units). The super luxury car market is currently navigating dual pressures from evolving policies and shifting market dynamics.
II. Consumption Tax Calculation Mechanism
The consumption tax for super luxury cars is calculated based on their sales stage:
For super luxury cars sold at the retail stage: Tax payable = Retail stage sales amount × Retail stage tax rate
For super luxury cars subject to double taxation (production and retail stages): Tax payable = Sales amount × (Production stage tax rate + Retail stage tax rate)
III. Main Content of Policy Update
On July 17, 2025, the Ministry of Finance and the State Administration of Taxation jointly issued "Announcement No. 3 of 2025," introducing significant adjustments to the consumption tax policy for super luxury cars. This reform aims to guide more rational consumption patterns, promote tax fairness, and foster sustainable industry development.
Key adjustments include:
Adjusted Scope of Collection: The consumption tax now applies to passenger cars and medium-to-light commercial passenger cars of all power types (including pure electric and fuel cell) with a retail price of 900,000 yuan (excluding value-added tax) and above per vehicle. Previously, the threshold was 1.3 million yuan. This expansion brings more models, particularly high-end NEVs, into the scope of consumption tax.
Special Provisions for New Energy Vehicles: Super luxury cars powered by pure electric, fuel cell, or similar technologies without a cylinder capacity will only be subject to consumption tax at the retail stage. This adjustment provides specific policy support for NEVs and encourages fair competition between traditional and new energy vehicles.
No Tax on Second-Hand Car Transactions: The announcement explicitly states that no consumption tax will be levied on the sale of second-hand super luxury cars by taxpayers. This provision prevents double taxation and aligns with principles of tax equity.
Clarification of Retail Stage Sales Amount: The retail stage sales amount is now clearly defined to include all payments and related charges collected by the taxpayer from the buyer concerning the car purchase. This encompasses payments for "fine products," accessories, and services. This clarification aims to prevent tax evasion through price splitting.
IV. Conclusion
The recent adjustments to the consumption tax policy for super luxury cars by the Ministry of Finance and the State Administration of Taxation underscore a commitment to guiding rational consumption, promoting energy efficiency, and fostering sustainable industrial growth. This policy shift has significant implications for both automobile manufacturers and consumers, presenting both challenges and opportunities for the entire automotive industry.
Automobile companies must proactively adapt to these policy changes by optimizing their product structures and pricing strategies to maintain market competitiveness. Concurrently, consumers should carefully consider the financial implications of these policy adjustments when making purchasing decisions.
At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.
PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.
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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way.
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