Current story on car consumption tax is performing in China. Consump-tion tax is levied on goods on the basis of value-added tax (VAT). A small number of commodities are chosen to impose consumption tax, which is usually seen in the production sector. As an ad valorem tax, consumption tax plays an important and positive role in effectively organiz-ing fiscal revenue and correctly guiding production and consumption. China began to levy consumption tax on cars in 1994 and set three different levels of tax rates according to the type and displacement of the cars. It was paid by the manufacturing enterprises in line with the cost prices of the cars. As car consumption keeps grow-ing rapidly in China, the consumption tax has also been adjusted accordingly: The first adjustment came in 2006. The previ-ous three levels were further upgraded to six levels, the gaps between which were widened obviously. The gap between the top and the bottom levels grew from 5% to 17%.
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