GM China benefits from tax cut
Thanks to the help of US taxpayers and China’s government, General Motors Corp can continue its business, for GM gets a $13.4 billion loan from US taxpayer and $1,170 subsidies from the latter one.
As a result of cut in retail taxes on small vehicles, GM’s minivan venture sales in China have had a 32% rise in the first 2 months. Recently, the government is giving out 5 billion yuan in subsidies in order to promote the auto sales in countryside.
Because of the tax cut and subsidies, GM predicted that it would enjoy a double growth in China. However, in the US market, it saw a 51% slide in the sales, which forced GM to ask for about $16.6 billion aid from government.
Compared with the previous prediction that sales would rise by less than 3%, GM’s vehicle sales may rise by 5% to 10% this year. With the help of SAIC-GM-Wuling Automobile Co, the largest minivan-maker in China, GM expects that it could surpass the original goal by 3% points. SAIC-GM-Wuling Automobile Company accounts for nearly half of the GM’s sales in China.
Nick Reilly, GM’s Asia-Pacific president said that government’s efforts to boost rural consumption have positive effect on Wuling’s rising sales, and government is trying to stimulate the auto and stock markets, which encourage people to invest again.
China Association of Automobile Manufacturers reports that SAIC-GM-Wuling sold 72,947 vehicles in February which is half more than last year. In January, the government cut the retail tax on vehicles with engines of 1.6 liters or less by 50%, and this action stopped the 3-month decline of auto sales.
According to the new policy, when purchasing a car, Chinese farmers or other rural residents can have a subsidy which equals 10% of the sale price, with a maximum of 5000 yuan.
In addition, if rural drivers buy a new truck or minivan to replace his own light truck, they can get a further 3,000 yuan.
This policy helped Wu Tao, who owns a store in Hebei province, to have the first vehicle of his family. Wu said that with the money given from the government, he could afford the car recently.
According to Shenyin & Wanguo Securities Co, this minivan sales may have a 30% rise this year.
Though subsidies increased the auto sales, there seems to be little profits for the car makers. The fact is that GM only holds about 34% of SAIC-GM-Wuling, while SAIC Motor owns 50.1 percent and the rest is owned by Liuzhou Wuling Motors Co. Generally, farmers will prefer the cars of low prices that could be 30,000 yuan.
Chairman of Anhui Jianghuai Automobile Group Co, Zuo Yanan said that farmers cared nothing but the price.
Tax policies are constantly changing, and especially in international tax laws, so consult with a top tax attorney to ensure your company is limiting its tax liabilities.
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