News Synopsis
China is to impose a staged consumption tax on lithium-ion batteries through a policy aimed at changing the face of the battery-making industry in China and developing energy storage technology of the future. The Ministry of Finance made the announcement on July 17, stating that lithium-ion batteries and lithium batteries would be taxed at a 2% consumption tax from September 1, 2026.
From September 1, 2027, the tax rate will rise to 4%. The consumption tax policy eliminates the exemption for lithium-ion batteries and other batteries, which have not been included under China's consumption tax policies since 2015.
Alongside the new tax, the government will temporarily exempt several advanced battery technologies from consumption tax through the end of 2028. The exemption applies to sodium-ion batteries, solid-state batteries, fuel cells and other qualifying advanced battery technologies. The measure is intended to encourage investment in emerging battery chemistries while accelerating industrial technology upgrades.
The policy comes as Chinese authorities seek to address manufacturing overcapacity across strategic industries including lithium-ion batteries and photovoltaic products. Rapid expansion of production capacity, combined with slowing domestic demandand has intensified price competition and reduced profit margins for battery manufacturers.
In the case of battery energy storage systems (BESS), the imposition of the new tax will have an impact on the manufacturing cost of lithium-ion battery cells. The developers and battery cell manufacturers may consider other forms of battery technology, such as sodium-ion batteries, which are exempted from the consumption tax until 2028.
According to China’s state-owned news organization Xinhua, the representatives in the industry consider that the reform would assist in developing the battery industry while meeting the environmental protection objectives. With the application of tax on traditional lithium-ion batteries and continuing the encouragement of the new technologies, the policymakers seek to boost innovation and competitiveness of China's battery production industry in the future.
Being the largest manufacturer of the lithium-ion batteries, China's policy reforms are likely to be observed by battery producers from across the globe, BESS developers and EV firms due to its potential impact on the manufacturing process.