(Yicai Global) March 6 -- Changan Automobile’s chairman has put forward the idea at China's key annual policy-setting meetings that the country should halve the consumption tax on some fossil fuel vehicles to boost sales.

The government should halve the tax for fuel cars with engines under two liters, Zhu Huarong, who is also a deputy to the National People's Congress, proposed based on his observations of the automotive industry.

China has many auto taxes: value-added tax, consumption tax, purchase tax, property tax, and income tax. Consumption tax is levied at between 1 percent and 5 percent for passenger vehicles with engines under two liters and 40 percent for those with engines over four liters. China halved the purchase tax on fuel vehicles to 10 percent in the second half of last year to buoy sales.

Consumption tax on fuel vehicles was introduced in 1994 in addition to VAT, Zhu said, adding that it has been adjusted several times since then. Autos are no longer luxury items but a basic form of transport, so the tax deviates from its original purpose of regulating the consumption of niche luxury goods, he noted.

The consumption and purchase taxes on vehicles are paid to the central government, so they do not spark local government enthusiasm to boost the economy, Zhu said. This situation, if it lasts, will lead local governments to focus on car production rather than sales, hindering local auto consumption, he added.

Zhu also suggested that China should cancel either the consumption tax or purchase tax on vehicles and allow local governments to keep a certain percentage of the income from these taxes.

Editor: Futura Costaglione