China begins phasing out EV tax breaks, starting with a new lithium battery levy

China has started to claw back the tax breaks that underpinned its EV boom, and lithium batteries are the first target. Under a joint announcement by the State Taxation Administration and other agencies, lithium primary and lithium-ion rechargeable batteries will carry a 2% consumption tax from Sept 1, 2026, rising to 4% a year later. That ends an exemption enjoyed by EV batteries for more than a decade, while ordinary battery types have long paid the full 4% rate.

The near-term hit to car prices is modest. Based on average August 2026 prices for domestic 314Ah LFP cells of roughly 0.365 yuan per Wh, a car with a 60 kWh pack would cost about 62 USD more at the 2% rate, or around 125 USD once the full 4% applies. Sodium-ion, solid-state and fuel-cell batteries stay exempt until the end of 2028, effectively nudging manufacturers toward next-generation chemistries.

The battery levy sits inside a broader retreat. From Jan 1, 2026, the NEV purchase-tax exemption became a half-rate levy with an effective 5% rate capped at 15,000 yuan per car, and from Jan 1, 2027 the 15-year-old vehicle-and-vessel tax preferences — a 50% cut for energy-saving cars and exemptions for electric, plug-in hybrid, range-extender and fuel-cell commercial vehicles — will be withdrawn. The outlet expects the remaining purchase-tax discount to disappear within three years, possibly as early as 2027.

None of this is aimed at domestic brands alone: any EV built in China, including Teslas, Volkswagens and Toyotas, qualifies for the same treatment. EVs additionally benefit from being exempt from the urban road-maintenance fees embedded in fuel prices, plus heavy state investment in charging and battery-swap networks — support that can push running costs down to about one US cent per kilometre.