As the sales tax cuts for smaller cars are to expire at the end of this year, China's industry regulator is reportedly considering an alternative plan to cut sales tax on eco-friendly new-energy vehicles, and this new policy may be released by the beginning of next year, Shanghai Securities News said today.

Sources from the Ministry of Industry and Information Technology (MIIT) told reporters that the policy of reducing the purchase/sales tax of vehicles with engines of 1.8L to 2.0L will come into effect after the current stimulus plan of halved tax (to 5%) on small cars with an engine size of 1.6 liters or less comes to an end on December 31 this year.

The sales tax cuts for small vehicles and other stimulus measures have worked effectively to boost China's auto market this year to date, with vehicles sales exceeding 1 million units in each of the recent few months. Some automakers have suggested extending the policy and canceling the sales tax of vehicles whose engines are less than 1.4 liters.

"The purchase/sales tax of vehicles must be modified. Some of the existing auto tax policies are curbing auto sales, and they are not in line with the policy of expanding domestic demand and consumption," said a person at the National Development and Reform Commission, China's top economic regulator.

A source from the MIIT said the sales tax of all vehicles with engines of 1.0 liters and less will decrease or even be cancelled, adding that it's necessary to work out incentive policies for new energy vehicles. Currently, the tax on new energy cars is higher than that for gasoline-powered cars.