China considering cut in car purchase tax

SHANGHAI, Dec 16 (Reuters) - China may cut its vehicle purchase tax for passenger cars to aid its slumping auto industry, focusing the cut on stimulating purchases of small cars, the official Shanghai Securities News reported on Tuesday.

Authorities are considering a proposal to cut the 10 percent tax paid by car buyers to 2 percent for engine sizes of up to 1 litre, the newspaper said. The tax would be cut by less for larger cars, and stay at 10 percent for engines above 4 litres.

Another proposal is for the tax to be removed completely for the smallest cars, the newspaper said, adding that a decision was likely to be made in the first half of next year.

"Relevant departments are now considering abolishing the vehicle purchase tax for passenger cars below 1.6 litres," the newspaper quoted Wang Chuan Fu, chairman of Chinese hybrid car maker BYD Co, as saying.

The China Association of Automobile Manufacturers, which is conferring with the government on ways to help the industry, believes cutting the tax would be the most effective method, the association's deputy secretary general, Dong Jianping, told the newspaper.

The government announced it would aid the industry after Chinese passenger car sales fell 10 percent from a year earlier in November, this year's third monthly drop.