China to tax vehicles based on engine size

Back in 2009, the Chinese government agreed to slash sales tax on vehicles sporting engines that displace 1.6 liters or less. The decision, which halved sales tax from ten percent to five percent, should've spurred the purchase of fuel-efficient autos. Apparently, it didn't.

Chinese legislators have now strung together a different scheme. Effective January 1, 2012, vehicles sold in China will be taxed based on engine size. Xinhuanet reports that the draft of the law, which was approved by the government late last week, outlines a tax plan that will work like this:

Taxes on vehicles with engine capacities from 1.0 liter to 1.6 liters dropped from 360-660 ($55 to $100 U.S. at the currrent exchange rate) yuan to 300-540 yuan ($46 to $82 U.S.). Meanwhile, taxes on vehicles with engine capacities of 1.6 liters to 2.0 liters dropped from 660-960 yuan ($100 to $146 U.S.) to 360-660 yuan ($55 to $100 U.S.).

In China, some 87 percent of the cars on the roads are powered by engines with less than 2.0 liters of displacement. Under the nation's new program, this is a good thing, since large displacement mills will be subject to taxes that max out at 5,400 yuan ($821 U.S.). Will this be the program that finally spurs the purchase of fuel efficient vehicles over in China? More interestingly, would this sort of engine size-based tax system work in the U.S.?

[Source: Xinhuanet]