China will end vehicle and vessel tax exemptions for several categories of commercial new energy vehicles (NEVs) beginning January 1, 2027, reflecting the government’s gradual reduction of tax incentives as electric vehicle adoption reaches record levels.
The policy, jointly announced by the Ministry of Finance, the State Taxation Administration and the Ministry of Industry and Information Technology, will require battery-electric commercial vehicles, plug-in hybrid commercial vehicles, extended-range electric commercial vehicles and fuel cell commercial vehicles to pay annual vehicle and vessel taxes.
Commercial NEVs Lose Tax Benefits
The revised policy also eliminates the existing 50% vehicle and vessel tax reduction for energy-saving vehicles.
However, battery-electric passenger cars and fuel cell passenger cars will remain outside the scope of the tax because they have no engine displacement under China’s vehicle and vessel tax framework.
As a result, battery-electric passenger vehicles—the largest segment of China’s NEV market—will continue to face no annual vehicle and vessel tax.
The tax is levied annually on vehicle and vessel owners, with rates varying according to vehicle category and engine displacement.
For conventional passenger vehicles with engine sizes between 1.6 and 2.0 liters, annual tax rates typically range from 360 yuan to 660 yuan, depending on provincial regulations.
Policy Reflects Maturing EV Market
China’s Ministry of Finance said the preferential tax policy, introduced in 2012, had successfully encouraged consumers to adopt new energy vehicles during the industry’s early development.
However, officials said the rapid expansion of China’s NEV market has changed the policy landscape.
According to government figures, China sold 16.49 million new energy vehicles in 2025, with NEVs accounting for more than half of all new vehicle sales nationwide.
Authorities also noted that many plug-in hybrid and extended-range vehicles are high-value assets, with the average selling price reaching about 218,000 yuan in 2025 and some premium models exceeding one million yuan.
The government said applying vehicle and vessel taxes to these vehicles would improve tax fairness while strengthening the role of taxation in income distribution.
Broader Tax Reform Under Discussion
The announcement comes as China’s electric vehicle market continues setting new adoption records.
According to data from the China Passenger Car Association (CPCA), new energy vehicles accounted for a record 62.9% of retail vehicle sales in May, marking the second consecutive month that market penetration exceeded 60%.
As electric vehicles become the dominant segment of the market, industry groups have begun discussing broader reforms to China’s road taxation system.
Last month, CPCA Secretary-General Cui Dongshu argued that the country’s fuel-based road tax framework should be modernized, noting that battery-electric vehicles currently use public roads without contributing fuel taxes while generally weighing more than comparable gasoline-powered vehicles because of their battery packs.
The latest policy adjustment signals China’s gradual transition away from broad purchase incentives toward a more mature taxation framework as new energy vehicles become the mainstream choice for consumers and commercial operators alike.
Source: CnEVPost