On July 16, 2026, the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration jointly issued Announcement No. 20 of 2026, “Notice on Adjusting Certain Battery Consumption Tax Policies,” announcing that, effective September 1, 2026, consumption tax will be levied at a rate of 2% on battery products previously exempt from such tax, including lithium primary batteries and lithium‑ion storage batteries. Starting September 1, 2027, the tax rate will be increased to 4%. This policy brings to an end more than a decade of tax exemption for lithium‑ion batteries, which had been in place since 2015. With the lithium‑battery industry now highly mature, this tax adjustment not only represents a precise response to the current stage of industrial development but will also trigger profound structural changes throughout the upstream and downstream segments of the value chain.

I. Policy Context: From “Helping Them Get on the Horse” to “Seeing Them Through”
In February 2015, China officially brought batteries within the scope of the consumption tax, with a statutory rate of 4%. To support the nascent new‑energy industry, the policy also stipulated that seven categories of green batteries—mercury‑free primary batteries, nickel‑metal hydride storage batteries, lithium‑ion storage batteries, solar cells, fuel cells, and all‑vanadium redox flow batteries—would be exempt from the consumption tax. At that time, the domestic lithium‑battery industry chain was far from mature, and the penetration rate of new‑energy vehicles was virtually zero; the core objective of the tax exemption was to lower the initial costs of this emerging sector and accelerate its growth.

Eleven years have passed, and the industry landscape has changed dramatically. According to statistics from the China Automotive Power Battery Industry Innovation Alliance, by 2025, China’s total production and sales of power and energy‑storage batteries are expected to reach 1,755.6 GWh and 1,700.5 GWh, up 60.1% and 63.6% year over year, respectively. Chinese lithium‑ion batteries now account for more than 80% of global shipments, and the penetration rate of new‑energy vehicles has risen from nearly zero in 2015 to around 60%. China has become the world’s largest producer, consumer, and exporter of lithium‑ion batteries, having established a self‑reliant, controllable, end‑to‑end industrial chain for new‑energy batteries.

As Huang Yana, an associate researcher at the Institute of Industrial Economy of the Chinese Academy of Social Sciences, notes: “In 2015, when tax exemptions were first introduced, the industry was still in its infancy. Today, China’s photovoltaic and lithium‑ion battery value chains dominate the global landscape, with production capacity, technological capabilities, and market shares all vastly improved compared to that time. The universal tax‑exemption policy has thus fulfilled its historical mission of ‘getting the industry off the ground.’” Against this backdrop, shifting the fiscal instrument from tax‑exempt support to equitable regulation has become an inevitable choice as the industry enters a mature phase.

II. Policy Design: Phased Implementation and Tailored Measures by Category
This policy adjustment underscores the hallmark of targeted regulation.

Phased implementation with a buffer period. Starting September 1, 2026, the tax on lithium batteries will be levied at a reduced rate of 2%, half the standard rate; after approximately one year, the statutory rate will revert to 4% as of September 1, 2027. This two-tiered, stepped‑rate structure helps prevent abrupt policy changes from imposing severe shocks on the industry chain, providing enterprises with ample time to adjust pricing, costs, and supply chains.

Adopting a categorized approach and treating different cases separately, the policy does not impose taxes on all batteries across the board. Emerging technologies such as sodium-ion batteries, solid-state batteries, and fuel cells—still in the early stages of industrialization—are granted a tax‑exempt period extending through the end of 2028. This arrangement clearly signals the direction of technological development: established mainstream technologies will bear the standard tax burden, while cutting‑edge innovations will continue to benefit from policy support.

To prevent double taxation, a credit mechanism has been established. The announcement explicitly stipulates that taxpayers who purchase or import batteries subject to consumption tax and use them in the continuous production of taxable battery products may deduct the taxes already paid based on the quantity consumed in the current period; for taxable batteries produced and used internally in the continuous production of taxable battery products, no consumption tax is levied at the transfer stage. This mechanism effectively ensures that the same product is not subjected to repeated taxation at different stages of the industrial chain.

III. Policy-Related Factors: Interwoven Logics
The reinstatement of the consumption tax on lithium batteries reflects a range of policy considerations.

First, there is the objective requirement of industry maturity. As industries transition from policy‑driven to market‑driven, phasing out tax incentives has become standard practice in industrial policy. The eleven-year tax exemption has enabled the lithium‑battery sector to grow from a fledgling industry into a mature, robust one; maintaining blanket tax exemptions would neither align with the principle of tax fairness nor contribute to further improvements in quality and efficiency.

Second, the policy aims to steer the industry away from low‑price competition. Lü Jinbiao, a consulting expert with the China Photovoltaic Industry Association, notes that the new measures are primarily intended to “prevent the new‑energy manufacturing sector from engaging in cut‑throat price wars and instead promote premium quality at fair prices.” Against a backdrop of ample overall lithium‑battery production capacity and persistent low‑price competition in certain segments, moderately raising the cost threshold through tax measures will help shift the industry from scale‑driven expansion to a focus on quality‑based competitiveness.

Third, advance institutional arrangements to ensure equal treatment for both gasoline and electric vehicles. Cui Dongshu, Secretary-General of the Passenger Car Association under the China Automobile Dealers Association, noted that from the halving of the vehicle purchase tax and the abolition of the exemption from the vehicle and vessel tax, to the reinstatement of the consumption tax on batteries, the “protection period” for tax incentives for new‑energy vehicles is being phased out in a measured and orderly manner. This reflects the natural transition of the new‑energy vehicle industry from policy‑driven support to fair market competition.

Fourth, policy guidance to promote energy conservation and environmental protection. As a tax designed to regulate consumption patterns, the inclusion of batteries within the scope of the consumption tax itself underscores its role in advancing energy efficiency and environmental sustainability. Established battery categories bear the tax burden, while emerging battery technologies still in the research and development phase remain exempt, reflecting a clear and well‑defined targeted regulatory framework.

IV. Industry Impact: A Structural Reconfiguration
(1) Short-term Cost Shocks and Transmission Dynamics
The consumption tax is an in‑price tax, levied on battery manufacturers at the production stage; however, its cost can be passed down the supply chain to downstream players. Based on current lithium‑iron‑phosphate cell prices of RMB 0.35–0.40 per Wh, a 2% tax rate would add approximately RMB 0.007–0.008 per Wh to costs. For a pure electric vehicle equipped with a 60 kWh battery, this translates to a cost increase of roughly RMB 480 under a 2% tax rate and about RMB 1,000 under a 4% rate. While the impact per vehicle is relatively modest, for an automaker producing one million vehicles annually, the cumulative additional cost could amount to several hundred million yuan.

However, whether cost increases can be smoothly passed along depends on the bargaining power of each link in the supply chain. EVE Energy has already taken the lead by issuing a price‑adjustment notice, announcing that, effective September 1, 2026, a 2% consumption tax will be imposed on its domestic sales. Hunan Yuno, the leading producer of lithium iron phosphate, has also announced price hikes across its entire product lineup. From raw materials to battery cells, the battery industry is undergoing a wave of intensive price adjustments. Yet industry insiders expect that the extent to which these price increases are passed down the supply chain will vary significantly.

(II) Corporate Differentiation: The Strong Remain Strong, While the Weak Face Pressure
This is the most profound impact of the current policy. The additional tax burden imposes markedly different pressures on different firms.

The overall gross profit margins of leading battery manufacturers generally range from 10% to 25%. Many long-term contracts already include tax‑and‑fee linkage clauses, allowing a 2% tax burden to be smoothly passed down the supply chain. With ample order backlogs in the energy storage sector and an “collect first, refund later” mechanism for export operations, overseas sales do not impose a lasting fiscal burden. EVE Energy stated on an investor‑relations platform that the policy’s impact on the company is manageable, and it will address this through cost‑sharing with upstream and downstream partners, internal efficiency improvements, and the development of new, tax‑exempt battery technologies.

By contrast, second- and third-tier battery manufacturers face a far more challenging situation. Reports indicate that one energy-storage cell maker in the Yangtze River Delta boasts a net profit margin of just 3.2%, with a 2% consumption tax set to erode nearly 80% of its quarterly net profit; if the tax rate were raised to 4%, the tax burden would exceed its full-year net profit. These companies have diversified customer bases but weak bargaining power, making it difficult to pass on rising costs to downstream customers. As cost‑pass‑through becomes increasingly strained, inefficient production lines may be forced to shut down at an accelerated pace, signaling the onset of industry consolidation.

(3) Vehicle Manufacturers: In-house Battery Production Receives Institutional Incentives
The policy’s impact on whole‑vehicle manufacturers of new‑energy vehicles is likewise divergent. The rebate mechanism outlined in the announcement provides a substantial benefit to automakers that produce their own batteries. Companies like BYD, which manufacture and install batteries in‑house, effectively sidestep the consumption tax because the batteries remain within the company and are not sold externally. By contrast, automakers that rely on externally sourced batteries face a rigid increase in per‑vehicle costs of several hundred to over a thousand yuan, as the purchase price of these batteries already includes the consumption tax, which cannot be offset.

Cui Dongshu stated bluntly that this adjustment to the consumption tax amounts to a “windfall” for automakers that produce batteries. This policy design will, in practice, encourage more vehicle manufacturers to develop in-house battery production, further accelerating the industry trend of automakers integrating upstream.

(4) Upstream Raw Materials: Indirect Transmission Rather Than Direct Impact
It is worth noting that the consumption tax is levied at the stage when lithium‑ion battery cells leave the factory; upstream lithium‑salt raw materials such as lithium carbonate are not subject to the tax, so there is no direct tax burden. The impact on the lithium carbonate market is transmitted indirectly through downstream battery manufacturers’ production planning, pricing strategies, and choices of technological pathways. In the short term, to mitigate cost pressures arising from the tax, some battery makers may ramp up production and increase output schedules, thereby boosting demand for lithium carbonate in the near term. However, from a medium- to long-term perspective, the consumption tax is essentially a policy that reallocates profits across the industry chain; it will neither alter the pace at which supply is released at the lithium‑ore and salt‑lake stages nor change the underlying fundamentals of global medium- to long-term demand for new energy.

V. Conclusion: From Scale Expansion to Quality Competition
The reinstatement of a 2% consumption tax on lithium batteries may appear to be a mere adjustment in the tax rate, but at a deeper level it marks a significant shift in China’s policy framework for the new‑energy sector. As the industry has moved from achieving its first breakthroughs—“from zero to one”—to scaling up—“from one to many”—the policy focus has naturally shifted from “supporting growth” to “guiding structural strengthening.”

In the short term, a 2% tax rate will indeed impose cost pressures on the industry chain and trigger transmission‑and‑pass‑through dynamics, posing severe challenges for second- and third-tier firms. However, over the longer term, this policy will accelerate the elimination of outdated production capacity and concentrate market share among leading companies that boast technological advantages, robust cost‑control capabilities, and integrated business models. Shifting the tax regime from broad‑based exemptions to targeted, sector‑specific adjustments is an essential step on the path toward industrial maturity and high‑quality development.

As industry insiders have noted, the reinstatement of the consumption tax on lithium batteries is expected to weed out substandard products by raising industry standards, thereby steering the battery sector toward a healthier and more robust structure. In today’s context—where the dual-carbon goals are steadily advancing and global competition in the new‑energy industry is intensifying—this seemingly modest step carries far‑reaching significance.