China Charges Special Tax on Luxury Cars

11. January 2017

China has decided to charge a special tax of 10% for luxury cars. This new tax became effective into force on December 1, 2016. The reasoning behind the tax is to help reduce air pollution in major metropolitan areas as well as to help curb wasteful spending by the Chinese elite. The Chinese president has been striving to slow down the spending by the Chinese upper class. This tax has already had a strong influence on the sale of luxury handbags and premium spirits. Of course this tax should also strengthen domestic production and reduce dependency on foreign companies.

German automotive manufacturers such as Audi, Daimler and BMW will also be affected. However, since the special tax only affects vehicles of 1.3 million Yuan (around 178,000 Euros) and above, the hit to the automotive manufacturers will be limited, as a BMW spokesman confirmed. At Audi, only about one per cent of their cars sold in China are affected.

VW’s sister companies Porsche and Lamborghini will be subjected to the tax due to their price point. Other manufacturers of luxury cars such as Ferrari, Rolls-Royce and Aston Martin will also be subject to the additional tax. Currently China represents the largest growth market in the luxury segment with growth rates of 50 to 100 percent.

Experts believe that the tax change will have only a short-term impact on the sales figures in China. German automotive manufacturers have already announced plans to react accordingly to avoid long-term effects.

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