Value-Added Tax Cut: Auto brands cut prices in response to tax change

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02:46

In China, a new round of value-added tax cuts is set to take effect today. Authorities say China's manufacturing sector will benefit the most this time. It will see one of the biggest cuts, as the VAT rate for manufacturers will drop from 16 to 13 percent. For transportation and construction, the rate will drop from 10 to 9 percent. CGTN'S Sun Ye has more.

BMW is among the first to announce a FULL-RANGE price cut, 2 to 3 percent in most cases, in response to China's VAT change. Car shopper Huang Yi says the adjustment is giving her a bit more nudge to finally make up her mind.

HUANG YI CAR SHOPPER "It's definitely good news. We have a budget of around 400,000 yuan and have been looking for a new car since last May. The more money we save, the better car we will get in the end."

She hasn't yet checked out her ideal car though.

Salesperson Li Chenggeng says clients are likely to hold out for even longer in the face of such favorable policies.

LI CHENGGENG BEIJING BAOXINHANG DEALERSHIP "Many have called to inquire about the change, but we don't see an immediate change in purchase or intentions. Customers may expect even more."

Mercedes-Benz, Volvo, Lexus, Jaguar and Land Rover have also announced plans to cut also mostly 2 to 3 percent off originally suggested prices. Experts say this alone will boost sales. After eight consecutive months of sales declines, spring may bring new life. The market may react, but Cui Dongshu of China Passenger Car Association says the benefits will still be better felt in the long run.

CUI DONGSHU, SECRETARY-GENERAL CHINA PASSENGER CAR ASSOCIATION "In the short term there might be a small uptick in car sales. But the real drive will come from an improving overall environment, for example with VAT cuts and the upcoming cut-down of companies' social insurance payment. When consumers have more money on their hand, the market will liven up."

He also says it's unlikely for entry-level vehicles to follow suit on the price drop.

CUI DONGSHU, SECRETARY-GENERAL CHINA PASSENGER CAR ASSOCIATION "Foreign brands and high-end cars have led this round of price drops because they have a price structure that benefits more from the VAT cut, and they have bigger profit margins. For entry-level vehicles, they probably don't have the room."

He expects China's overall auto market to pick up by the second half of 2019. SY, CGTN, BJ.