China to lower VAT rebate for new energy vehicle exports

China will be reducing the VAT rebate for new energy vehicle exports from April 2027, from 13% to 9%.

The reduction affects all types of new energy vehicles, including commercial electric vehicles and plug-in hybrid passenger vehicles, according to a 12 October announcement from the Ministry of Finance and the State Taxation Administration.

Lowering the rebate rate serves several purposes, Cui Dongshu, head of the Passenger Car branch of the China Automobile Dealers’ Association, told Yicai. One is to curb involution – vicious competitive practices among automakers, such as exporting at very low prices and even at a loss. High rebates have allowed them to offset losses overseas by selling below cost through tax refunds, and Cui said this could trigger anti-subsidy investigations abroad. The other is to proactively manage trade friction risks and encourage the industry to move from competing solely on price to focusing on product quality.

The announcement comes just days after the conclusion of China-European Union trade negotiations. Both sides reached a consensus on “moderately adjusting” Chinese exports of hybrid and plug-in hybrid electric vehicles to the bloc, according to the China Chamber of Commerce to the EU.

The EU imported about 300,000 hybrid vehicles from China in 2025. According to CCTV, the two sides negotiated a fixed annual increase based on the figure, ensuring stable growth of Chinese automobile exports to the EU.

The rate reduction is expected to have a less than 2% impact on the gross profit margin of exported models. This means it will have a relatively limited impact on mid- to high-end models, but puts greater pressure on low-end, high-volume models as they already operate on thin margins, according to the 21st Century Business Herald.

The reduction follows the VAT export rebate cancellation for solar products effective April 2026. The same rebate for battery products, meanwhile, was reduced from 9% to 6% in April, and will be cancelled starting January 2027.

Yang Weibin, an expert in new energy vehicles and power batteries, told the Daily Economic News that as the scale of exports of such vehicles continues to increase, their VAT export rebate will be gradually reduced until it is eventually completely eliminated.

Read Dialogue Earth’s previous report on China’s cancellation of export tax rebates for solar products.