Shanghai (ZXZC)- A reduction of 1 percentage point in China's VAT (value-added tax) rate has come into effect on May 1 and the prices of several luxury vehicle models dropped accordingly afterwards. 

The VAT rate applied to manufacturing and related industries has been decreased from 17% to 16%, according to a statement released on the website of China's Ministry of Finance.

Automotive companies have quickly responded to the VAT changes. Mercedes-Benz announced on the same day that the company has lowered the suggested retail prices for several models. For instance, its Smart-branded models and C-class sedans see maximum price cuts of RMB 2,000 and RMB 4,000 respectively. Meanwhile, the retail prices of the Mercedes AMG models come down by as much as RMB 32,000, while the S-class sedan models and the Mercedes-Maybach models could have price reduction ranging from RMB 7,000 to RMB 25,000.

Jaguar Land Rover announced a maximum suggested retail price cut of RMB 20,000 for its existing models as well.

In the meantime, Lincoln brand cut prices for 5 models, among which the Navigator saw the biggest price drop up to RMB 10,000. In addition, some versions of the Lincoln MKZ and MKC had price cuts at least RMB 2,600.

From the data released by China Passenger Car Association, the total profit of auto industry reached RMB 645.8 billion in 2017. Although the manufacturing industry is the champion by total profit value, its year-on-year growth was the lowest compared with others, only reaching 5.8%. According to China's National Bureau of Statistics, the total vehicle output in China climbed 3.2% year on year to 29.94 million units in 2017, while the output of sedans fell 1% from the previous year. Besides, the profit margin of China's auto industry in 2017 was 8%, decreasing 0.4 percentage point from a year ago.