Luxury Cars: Chinese Government Imposes New Tax Rates On High-End Cars

Dec 02, 2016 07:10 PM EST | Matthew Cruz

As part of a government crackdown on excessive spending, it looks like luxury cars are about to take a big hit in the world's largest vehicle market. The Chinese government's ministry of finance has announced that an additional 10 percent tax rate will be imposed on premium cars that cost 1.3 million yuan ($188,852) and more, a move that will have big implications for luxury brands like Ferrari, Rolls-Royce and Aston Martin. 

High-end models produced by automakers like Audi AG, BMW and Daimler AG's Mercedes-Benz also stand to face price changes due to the increased tax rates, according to Fortune. Luxury cars are only the latest target in the campaign of the government, led by President Xi Jinping, which has also cracked down on premium restaurants, alcohol, designer handbags, watches and other luxury items. 

The series of austerity initiatives began in 2013 and is an effort to stem corruption and ease both economic and political tensions, particularly what the government feels has been over-spending by Chinese elites that could lead to an eventual backlash. 

Particular to luxury cars, the effort is also seen as a means to curb emissions and lessen import dependence. For many luxury carmakers, the Chinese market was the sole bright spot in a year of overall decreasing numbers. According to CNBC, the country is the most rapidly growing market for Ferrari, Rolls Royce and other high-end manufacturers, with certain carmakers obtaining growth rates of 50 to 100 percent.

In addition, it was Chinese consumers that brought the auto market out of a slump in 2015 due to a suspended sales tax that will end by the new year. The makers of luxury cars, however, did not seem to be worried by the prospect of rising prices. According to executives, the raise in tax rates would affect a limited number of vehicles and would be unlikely to ward off rich customers who are willing to purchase such expensive vehicles. 

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