It is the second time that the State Administration of Taxation (SAT) adjusted the tax after the country began implementing it to replace the automobile purchasing fee last year.

The administration adjusted the tax for the first time last November. The tax is now even lower.

The administration will continue to adjust the tax in accordance with market changes, officials said.

"The adjustment indicates that the tax department is trying to create a fair market environment while managing to keep a normal tax income," said Ni Hongri, a research fellow with the Development Research Centre at the State Council.

But the adjustments won't have much positive effect on the country's automobile consumption, according to Ni.

The country should introduce a complete automobile policy to encourage consumption, said Liu Shijin, another research fellow at the centre.

"It is imperative for the government to develop a specific consumption policy and put it into operation to encourage more private buyers," Liu said.

It is estimated that private consumers will account for 70 per cent of total auto buyers within the next 10 years.

An adverse consumption environment was a big obstacle curbing the development of the auto industry, Liu said.

Jia Xinguang, an analyst from the China National Automobile Industry Consulting and Development Corp, said the most serious problem was local authorities placing limits on the use of private and mini vehicles, as well as arbitrary fees imposed on consumers.

The central government already charges a 3-to-8 per cent auto consumption tax and a 10 per cent sales tax.

"I hope a favourable consumption policy will be released this year," Jia said.

The current limits, taxes and fees have seriously depressed the market, Jia said.

Taxes and fees charged by local governments currently average 15 to 40 per cent of the price of a car.

The taxes and fees imposed on consumers by the central and local governments in 1999 exceeded 160 billion yuan (US$19 billion), compared to profits of less than 5.8 billion yuan (US$699 million) for all domestic auto makers, according to official statistics.

Things have not significantly improved since then, although the central government has abolished 238 administrative fees that had been levied against customers since July 2000.