New Tax Incentives for New Energy Vehicles: Higher Standards for Purchase Tax Exemptions Starting Next Year

Starting next year, the technical requirements for the exemption of vehicle purchase tax for new energy vehicles (NEVs) will be raised. According to a joint announcement made by the Ministry of Industry and Information Technology and two other departments on October 9, 2023, the pure electric range for plug-in hybrid vehicles (including range-extended hybrid vehicles) must exceed 100 kilometers.

This announcement, titled “Technical Requirements for the Exemption of Vehicle Purchase Tax on New Energy Vehicles for 2026–2027” (hereafter referred to as “the Announcement”), introduces updated national standards for energy consumption in pure electric passenger vehicles. Notably, it raises the pure electric range threshold for plug-in hybrid vehicles from the previous 43 kilometers to 100 kilometers.

Cui Dongshu, Secretary-General of the China Passenger Car Association, stated in an interview that these adjustments to the technical requirements for NEVs aim to keep pace with rapid advancements in vehicle range and range-extending technologies. By raising the technical thresholds, the intention is to encourage companies to invest more in research and development, phase out outdated products, and promote a shift in the industry from rapid expansion to high-quality development, stabilizing long-term expectations for policies.

From January 1, 2026, models included in the “Catalog of New Energy Vehicles Eligible for Purchase Tax Exemption” must comply with the requirements laid out in the Announcement. The purpose of these regulations is to enhance energy conservation and carbon reduction efforts while emphasizing qualitative improvements and technological innovation.

Experts suggest that automakers should quickly comply with the new energy consumption and range standards to prepare for sales. Importantly, it is not enough to simply increase battery capacity to meet range requirements; companies must focus on research and development, enhance innovation, and improve the efficiency of the “three-electric” systems (battery, motor, and electronic control) to achieve longer distances with the same amount of energy.

The Announcement stipulates that the energy consumption of pure electric passenger vehicles should not exceed the limits specified in the “Energy Consumption Limits of Electric Vehicles—Part 1: Passenger Cars” (GB 36980.1—2025). This mandatory national standard was approved by the State Administration for Market Regulation and is set to take effect on January 1, 2026.

According to the Announcement, conventional vehicle energy consumption limits have been adjusted from previous thresholds, with the vehicle weight categories being updated from 750 kg and 2510 kg to 1090 kg and 2710 kg. The energy consumption limits for a reference weight of 1780 kg are approximately 11% stricter than those in the previous phase.

Cui Dongshu emphasized that energy consumption is the most critical indicator for pure electric vehicles. Reducing energy consumption demonstrates the comprehensive design capabilities of electric vehicles and is a core goal for all manufacturers. The new standards are designed to indirectly curb the excessive trend of increasing the size of NEVs by setting the total vehicle weight standard for pure electric passenger cars at over 2700 kg.

The Announcement also states that for passenger cars with a maximum design total mass exceeding 3500 kg, the energy consumption limits will refer to those defined for vehicles with a maximum total mass of 3500 kg according to GB 36980.1—2025. However, since vehicles over 3500 kg are rare and typically belong to the logistics sector, this change is not expected to have a significant impact.

Cui Dongshu further remarked that these technical requirements will stimulate upgrades in battery capacity and hybrid systems, optimizing the driving experience and enhancing product safety and competitiveness. Strict standards will drive manufacturers to introduce higher-performance models, catering to consumer demands for long range and low energy consumption while promoting green and low-carbon development.

The Ministry of Industry and Information Technology stated that the implementation of GB 36980.1—2025 will facilitate advancements in automotive energy-saving technologies, improve vehicle efficiency, and phase out high-energy consumption models. This will play a crucial role in supporting the automotive industry’s carbon peak goals and promoting high-quality development within the new energy vehicle sector.

For plug-in hybrid vehicles (including range-extended hybrids), the Announcement outlines several technical requirements. Compared to the previous announcement in 2023, which set the minimum pure electric range at 43 kilometers, the new requirements significantly raise the bar.

Professor Ji Xuehong from Beifang University of Technology noted that the increased requirements for the pure electric range of plug-in hybrid vehicles will help reduce consumer travel costs and enhance the travel experience. As a result, companies may conduct promotional sales on models with pure electric ranges below 100 kilometers before the end of the year.

Currently, approximately 40% of plug-in hybrid vehicles on the market have a pure electric range of less than 100 kilometers. These vehicles are expected to be phased out before January 1, 2026, which may accelerate the inventory clearance process for manufacturers and lead to fluctuations in sales early next year.

Notably, most mainstream plug-in hybrid vehicles now available have pure electric ranges exceeding 100 kilometers. For instance, the Wanjie M5 range-extended version has a pure electric range of 230 kilometers, the BYD Tang DM-i intelligent version offers a range of 175 kilometers, and the Li Auto L8 CLTC boasts over 225 kilometers.

Cui Dongshu believes that the Announcement signals the countdown to the end of the NEV purchase tax exemption policy rather than its continuation. The new tax reduction policy, which will halve the vehicle purchase tax starting next year, necessitates the implementation of new technical standards.

In June 2023, the Ministry of Finance, the State Taxation Administration, and the Ministry of Industry and Information Technology issued a notice confirming the halving of the vehicle purchase tax for NEVs purchased between January 1, 2026, and December 31, 2027. Currently, the vehicle purchase tax rate is 10%, meaning the effective tax rate for NEVs will be 5% following the exemption.

Ji Xuehong pointed out that the new product technical requirements are formulated by regulatory authorities in line with the latest technological developments in China’s NEV sector. Models included in the tax reduction policy starting in 2026 must meet these technical progress requirements. He believes that companies should have anticipated these new technical demands.