What Taxes Should Be Paid When Buying a Car?

[Amir]

Taxes to be paid when buying a car include consumption tax, value-added tax, purchase tax, and vehicle and vessel tax. Here are the specific details: 1. Consumption Tax: The purchase tax frequently mentioned when buying a car is actually an extra-price tax. In reality, automobile manufacturers also need to pay taxes when producing cars, including the consumption tax, which is an intra-price tax. The automobile consumption tax was newly established during the national tax reform in 1994 and was included in the "Interim Regulations of the People's Republic of China on Consumption Tax" implemented on January 1, 1994. For passenger cars, three tax rates are set based on different engine displacements, and this tax is levied on manufacturers. 2. Value-Added Tax (VAT): The current VAT system is based on the "Interim Regulations of the People's Republic of China on Value-Added Tax" (State Council Decree No. 134) issued by the State Council on December 13, 1993. VAT is a turnover tax levied on the value-added amount generated during the circulation of goods (including taxable services). A 17% tax rate applies to the sale of goods, provision of processing, repair, and replacement services, import of goods, and tangible movable property leasing services, which includes automobile transactions. 3. Purchase Tax: On September 22, 2016, the Ministry of Finance issued a notice stating that from January 1, 2017, to December 31, 2017, a 7.5% purchase tax rate would be applied to passenger cars with engine displacements of 1.6 liters or below. Starting from January 1, 2018, the statutory purchase tax rate of 10% was reinstated. The formula for calculating the new car purchase tax is: New car purchase tax = (New car price including tax ÷ 1.17 [VAT rate of 17%]) × purchase tax rate. Here, the 17% VAT must be deducted before multiplying by the purchase tax rate to avoid double taxation. 4. Vehicle and Vessel Tax: The vehicle and vessel tax, also known as the vehicle and vessel usage tax, is a usage behavior tax levied on vehicles traveling on public roads and vessels navigating domestic rivers, lakes, or ports. The tax is calculated based on the type (e.g., motor vehicles, non-motor vehicles, passenger cars, cargo trucks, etc.), tonnage, and prescribed tax rates.