New Tax Reduction Policy for New Energy Vehicles Starting in 2026: Key Changes and Implications

Starting next year, significant changes will be implemented regarding the purchase tax exemption for new energy vehicles (NEVs). On October 9, the Ministry of Industry and Information Technology, along with two other departments, issued a notice detailing the technical requirements for NEVs exempted from vehicle purchase tax for the years 2026 to 2027. From January 1, 2026, the purchase tax for these vehicles will be halved, and the pure electric range requirement has been increased from 43 kilometers to 100 kilometers.

The announcement introduces updated national standards for the energy consumption of pure electric passenger vehicles, aiming to align policies with the rapid advancements in vehicle range and hybrid technology. By raising the technical thresholds, the government seeks to encourage companies to invest more in research and development, phase out outdated products, and shift the industry focus from mere scale expansion to high-quality development, as explained by Cui Dongshu, the secretary-general of the Passenger Car Market Information Association.

According to the notice, vehicles listed in the directory of NEVs eligible for tax exemption must comply with the new requirements starting January 1, 2026. The primary goal of this announcement is to strengthen energy conservation and carbon reduction efforts, emphasizing the transition from quantity to quality and the importance of technological innovation.

For pure electric passenger vehicles, the energy consumption limit per 100 kilometers must not exceed the values outlined in the national standard “Energy Consumption Limits for Electric Vehicles—Part 1: Passenger Vehicles” (GB 36980.1—2025). This standard is mandatory and has been approved by the National Market Supervision Administration, with implementation set for January 1, 2026. The Ministry of Industry and Information Technology noted that recent advancements in energy-saving technologies for pure electric vehicles necessitated stricter energy consumption limits to enhance vehicle efficiency and promote the application of advanced energy-saving technologies.

The GB 36980.1—2025 standard specifies energy consumption limits for conventional vehicles, adjusting the vehicle mass thresholds from 750 kg and 2510 kg to 1090 kg and 2710 kg. The limits at a reference mass of 1780 kg reflect an approximately 11% tightening compared to previous phases.

Cui Dongshu emphasized that energy consumption is a critical metric for pure electric vehicles. A reduction in energy consumption showcases the comprehensive design capabilities of electric vehicles and is a key target for manufacturers. The new standards set the overall weight limit for pure electric passenger vehicles at over 2700 kg, indirectly curbing the excessive trend towards larger NEVs.

The notice also states that passenger vehicles with a maximum design total mass exceeding 3500 kg must adhere to the energy consumption limits specified for vehicles weighing 3500 kg. However, since such heavy passenger vehicles are rare and typically belong to the logistics category, this requirement is unlikely to have a significant impact.

The new technical requirements are expected to drive advancements in battery capacity and hybrid systems, enhance driving experience, and improve product safety and competitiveness. Stricter standards will push companies to develop higher-performance models, catering to consumer demands for longer range and lower energy consumption, thereby supporting both market expansion and sustainable development.

Furthermore, the announcement sets higher technical requirements for plug-in hybrid vehicles (including extended-range models). Compared to the previous announcement, which specified a minimum electric range of 43 kilometers, the new requirement significantly raises the bar for pure electric range. This change is anticipated to reduce daily travel costs for consumers and improve their overall travel experience.

Currently, about 40% of the plug-in hybrid vehicles on the market have a pure electric range of less than 100 kilometers. As a result, manufacturers may conduct promotional sales before the end of the year to clear out existing inventory. Some models currently available, such as the Wanjie M5 extended range version with a pure electric range of 230 kilometers, the BYD Tang DM-i with a range of 175 kilometers, and the Li Auto L8 with a range exceeding 225 kilometers, already meet the new requirements.

Cui Dongshu indicated that this announcement signals a transition away from the current purchase tax exemption policy for NEVs, suggesting that the exemption may soon come to an end. The new half-rate tax policy starting next year is likely to require updated technical standards to support it. The likelihood of continued exemption from vehicle purchase tax for NEVs next year is low, and a 5% tax rate is expected to be implemented instead.

As stated in the announcement by the Ministry of Finance and other departments, from January 1, 2026, to December 31, 2027, the purchase tax for NEVs will be halved, reducing the effective tax rate from the current 10% to 5%. The introduction of new product technical requirements is a response to the latest advancements in NEV technology and is aimed at ensuring that eligible models for the purchase tax reduction meet these updated standards.