From September 1, 2026, China will introduce a consumption tax on lithium-based batteries, ending an eleven-year exemption. Initially set at 2%, the tax will increase to 4% from September 2027.
The new rules cover lithium-ion, lithium primary, nickel-based, and vanadium redox flow batteries. However, sodium-ion, solid-state batteries, and fuel cells will remain exempt until the end of 2028, as will certain advanced solar cells.
This measure reflects a shift in China’s support policies, reallocating incentives from established technologies to next-generation electrification. While increasing costs for dominant lithium-ion batteries, it creates a financial incentive for alternative technologies like solid-state and sodium-ion batteries, accelerating their market adoption as the NEV market matures.
From 1 September 2026, China will introduce a consumption tax on lithium-based batteries, ending an eleven-year tax exemption for the sector. The measure was jointly announced by the Ministry of Finance, the General Administration of Customs and the State Taxation Administration.
According to media reports, the tax rate will initially be set at 2% and increase to 4% from 1 September 2027. The new rules cover lithium-ion batteries as well as lithium primary batteries, nickel-based batteries and vanadium redox flow batteries. Sodium-ion batteries, solid-state batteries and fuel cells will remain exempt until the end of 2028. In the photovoltaic sector, exemptions will also apply to perovskite, tandem and gallium arsenide solar cells.
The measure brings to an end a tax exemption introduced in 2015 to support electromobility and other low-emission technologies. At the time, lithium-ion batteries, nickel-metal hydride batteries, fuel cells and solar cells were exempted from the consumption tax.
For lithium-ion batteries, which now dominate the market, the new rules could increase costs throughout the supply chain. At the same time, the exemption creates a financial incentive for alternative battery technologies. Sodium-ion and solid-state batteries, which were previously subject to a 4% consumption tax, will now be exempt until the end of 2028.
The decision must also be viewed in the context of technological progress. Several Chinese battery manufacturers are currently advancing the industrialisation of solid-state batteries. Companies such as CATL and BYD have already announced plans to equip initial vehicles with the new cell technology from 2027, albeit in small volumes. The newly adopted tax exemption could further accelerate the market ramp-up of these technologies.
The introduction of the consumption tax forms part of a broader shift in China’s support policies for electromobility. In early July, the government announced plans to phase out tax incentives for certain battery-electric and plug-in hybrid vehicles from 2027 onwards.
The move reflects the growing maturity of the market. According to the China Passenger Car Association (CPCA), so-called New Energy Vehicles (NEVs) accounted for 54% of new passenger car registrations in China during the first half of 2026.
Against this backdrop, China is reallocating its state incentives from established technologies to the next stages of electrification, including new battery technologies.
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