China to resume levy of 10 per cent purchase tax on vehicles

China plans to resume levying a 10-per cent purchase tax on vehicles with engine sizes of 1.6 liters or less starting 2011 as it rebounds from the financial crisis and its economy regains its rapid pace of growth.

According to China's ministry of finance (MOF), sales tax on cars with engines of 1.6 liters or lower was halved by the authorities in 2009 as measure to combat the financial crisis and spur the use of clean and fuel-efficient cars.

The tax was then hiked to 7.5 per cent on 1 January this year.

According to finance ministry spokesman Liu Shangxi, China launched its tax incentive policy in 2009 to boost domestic consumption in the financial crisis. He added that the policy needed to be adjusted with the country having ridden out the crisis.

Boosted by tax incentives and other favorable policies, the Chinese auto market grew rapidly in the past two years.

Last year, China overtook the US to became the world's largest auto market with sales of 13.65 million vehicles, up 46 per cent year on year, with production zooming 48 per cent to 13.79 million units.