Car levy policy irks the public

By Li Hong

Private cars are symbol of the middle class, the backbone of a stable society. Though the world is promoting usage of least-exhaust vehicles including hybrid and electric cars, the majority of vehicles running on the streets will remain to be gas-powered in the foreseeable years.

China's recent legislation to hike "usage" tax on vehicles with an engine bigger than 1.6 liters has caused uproar of upbraiding and opposition from the public, because the draft law will impose extra burden on the middle class. The vast car-owners are upset at a time when prices of nearly all items from gasoline to food and utilities have surged.

The Ministry of Finance, a major proponent of the legislation, says it will help lower dirty tail-gas emissions and improve the air we inhale every minute. However, the public aren't convinced. Just quote an online quip: "Environmental protection is a good excuse. It is being used again to usurp our money. "

Some swipe at the government for luring them to buy cars with "purchase" tax reductions in its attempt to ratchet up vehicle sales and help economic growth following the assault of a crippling financial crisis. Aided by the government policy, China sold 13.6 million cars in 2009, overtaking the United States as the world's largest auto market.

The insiders are worried that China's central government could come out with more taxation measures, in addition to the vehicle "usage" tax hike, to bag more revenues and give the receipts to the provincial-level governments, which are now seriously in debt. In the aftermath of the financial crisis, Beijing meted out a broader stimulus plan and allowed local governments to borrow heavily from banks. There are estimates putting the local government debt at more than 2 trillion yuan.

Selling land to real estate developers used to be the major income resource of those local governments. However, Premier Wen Jiabao's increasingly stiffening measures to curb housing bubble from expanding and creating systematic risk to China's economy, starting in April, has cooled the sector, and therefore, drained a source of revenue for the local governments. Beijing knows its subordinate branches are reeling in dire financial straits.

If more taxes are proposed by Wen's cabinet and approved by the NPC Standing Committee, China's middle class, estimated at around 350 million to 400 million, will bear the brunt of the burden, which will cut into their enthusiasm and ability to spend their hard-earned money. In that case, the government's promise to promote domestic spending will evaporate.

Chinese people have long asked the government to cut personal income tax by raising the threshold of taxable income from 2,000 yuan to 3,000 yuan. When other countries in the world give more tax holidays and breaks to their people to stimulate spending and prevent a slowing recovering economy from sputtering out, Beijing's insistence to tax more on the middle class is inappropriate and insensible. It is sure to meet fiercer opposition from the middle class.

The new draft law stipulates that the charges for motor vehicles with an engine size over 2.5 liters will be raised much higher than the current level. This, in addition to a much-higher "vehicle purchase" tax, will restrict luxury car sales, which are often imported from abroad. The policy won't affect a tiny portion of the very affluent middle class in consuming good cars, but many runners-ups' dream of owning a luxury car is shattered.

Nevertheless, the legislation has its silver-lining that use of smaller-engine cars will be encouraged in the country of 1.3 billion, which will reduce China's oil dependence and help conserve the planet's fossil energy.