China’s Ministry of Finance (MOF) has announced that photovoltaic cells will be subject to a 2% consumption tax from April 1, 2027. The tax rate will increase to 4% from April 1, 2028.
The tax is expected to accelerate capacity rationalization in China’s solar industry by increasing cost pressure on manufacturers with already low margins and making inefficient production facilities increasingly unviable. While a 2 to 4 percent consumption tax may seem modest, it could further pressure profitability for manufacturers operating on tight or negative margins, potentially hastening the retirement of aging capacity and the departure of less competitive players.
The Chinese government has also introduced a consumption tax on a range of battery products, including lithium-ion batteries, nickel-metal hydride batteries and other energy storage technologies, with rates of 2% from September 2026 and 4% from September 2027. The measure broadens the scope of China’s battery-related tax framework and reflects policymakers’ efforts to improve industrial efficiency, curb the expansion of low-value capacity and encourage the development of advanced technologies.
The new tax adds to mandatory national standards tightening energy consumption and efficiency requirements across the PV value chain that Chinese authorities issued in early July.
The rules, which come into effect on January 1, 2027, are expected to reshape production, procurement and project selection by favoring products with higher efficiency and lower energy intensity. However, market participants remain divided over whether the new standards will actually reduce overcapacity and support a more sustainable pricing environment.
Since China’s solar industry entered a prolonged downturn more than two years ago, policymakers and industry participants have explored various approaches to address severe overcapacity. One such initiative was a plan to reduce polysilicon overcapacity, which was ultimately abandoned after China’s State Administration for Market Regulation (SAMR) warned that it could have resulted in a monopoly in the polysilicon segment.
The plan involved China’s six largest polysilicon producers – Tongwei, GCL, Daqo, The six companies together have a capacity of almost 2.5 million tonnes (MT); the rest of the industry accounts for 700,000 tons.
