Chinese VAT Drop Prompts BMW, Mercedes-Benz Lower Prices There

As a mark of a tone down for its stance on foreign companies doing business in the country, China had recently announced the reduction of the value-added tax (VAT) in the country starting on April 1. This has prompted two foreign car makers – BMW AG and Mercedes-Benz to announce reduction of price for their cars in China as a means to pass on the relief to the consumers. Both the companies announced the decision on Saturday.

The announcement was made separately by both the German automobile companies through official posts on Chinese social media where in they said that the reduction in price would be applicable with immediate effect for a number of their models. Analysts believe that the move by China is also to spruce up its automobile market which had gone into a contraction last year for the first time in decades. In addition there is also a perceived slowdown of the Chinese economy.

The prices for a number of models that are both manufactured domestically in China as well as the imported ones would be cut down, BMW said. The models would be impacted by the reduction in price include the domestically produce BMW 3 series and BMW 5 series, as well as the imported models such as BMW X5 and BMW 7. With a reduction of 10,000 yuan from its original price, the suggested retail price of 339,800 yuan ($50,620) would be charged for the BMW 320Li M model.

BMW said in a post on WeChat – the most popular messaging app in China, that the lowering of prices of different models she\reflects the company’s “active response to the national VAT adjustment notice”.

Similar price cuts on a range of its cars were also announced by Mercedes-Benz – which is owned by Daimler AG. The new reduced price list would also be applicable with immediate effect and even before the implementation of the drop in the VAT charges in China. According to the social media page of the company, the reduction in prices range from between 10,000 yuan and 40,000 yuan for some of the select models.

The reduction in VAT for a wide range of industries was announced by the Chinese Premier Li Keqiang on March 5 this year. The Chinese authorities announced that the drop in VAT for the manufacturing industry would be about 3 per cent – from 16 per cent to 13 per cent, while that for the transportation sector from, the new applicable VAT would be 9 per cent, down from the previous 10 per cent.

There is a major slow down in the automobile industry in China currently. There was shrinkage of the cat industry in the country by 5.8 per cent in 2018 which the first such contraction in the industry in over two decades.

A number of measures have been introduced by Chinese policy makers to stimulate demand din the car industry. The restriction applicable on  the second-hand car market were loosed by the country’s National Development and Reform Commission (NDRC) as announced in January this year and announcement of providing subsidies to increase sale of cars in the rural areas of the country was also made.

(Adapted from WallStreetReporter.com)

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