China is cutting export tax rebates for vehicles with alternative powertrains. With exports being a key growth driver, this puts Chinese automakers under pressure - just as domestic sales are slumping.

The Chinese government is reducing state support for the export of new energy vehicles (‘NEVs’). Specifically, the Ministry of Finance and the State Taxation Administration in Beijing have announced that the value-added tax (VAT) rebate for the export of battery-electric vehicles, plug-in hybrids in the passenger car segment, as well as electric buses and electric tractor units, will be lowered from the current 13 per cent to 9 per cent starting 1 April 2027.

The 13 per cent rebate previously covered all regular VAT payments incurred on purchased goods during vehicle production. This avoided double taxation of exported vehicles due to additional import VAT and allowed prices abroad to be set correspondingly low.

With the rebate rate reduced to 9 per cent, four percentage points of the tax will now remain as a genuine cost for manufacturers, as this difference will no longer be reimbursed by the state. Existing regulations regarding rebates and exemptions from consumption tax remain unaffected by this measure.

While the Chinese government did not specify a particular reason for these measures, economists attribute the adjustments to the increased global competitiveness of the Chinese industry. The measures aim to curb aggressive price competition in international markets and encourage manufacturers to compete more on the basis of technology, brand quality and service rather than state-subsidised discount prices.

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