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Buyers of small-engine, low-emission cars are set to get tax breaks as the government tries to reduce oil consumption and pollution.

The incentives, to be announced soon, will define what environment-friendly and economy cars are, Liu Zhi, director of the industry policy department of the National Development and Reform Commission, said at a seminar on cleaner fuel on Monday.

For example, cars with an engine capacity up to 1.4 litres are now categorized as "economy automobiles." Other criteria include size, oil consumption, environment standards and safety indicators.

The State Council Development Research Centre, the government's top think-tank, has prepared a report on the tax breaks, Feng Fei, the centre's director of the industry department, told China Daily recently.

Buyers of low- or zero-emission vehicles will be exempted from taxes while bigger cars with higher emissions will be taxed heavily, he said.

For cars with an engine capacity of more than 3.0 litres, the tax could be as high as 15-20 per cent, Feng said.

At the moment, vehicle tax is 3-8 per cent and is levied on auto producers before vehicles enter the market.

"We suggest that tax be levied on car buyers directly, which will encourage them to consider buying economy vehicles with lower emissions," he said.

Liu said the tax incentives are aimed at lowering oil consumption and easing environmental pressures.

Automobiles account for nearly one-third of China's oil consumption annually, according to official statistics.

The centre predicts that by 2010, cars will consume 138 million tons of oil each year, or 43 per cent of China's total demand.

The State Administration of Environment Protection has forecast that urban pollution will mainly be generated by cars unless the country is able to effectively control exhaust emissions.

However, economy cars in China have had a rough ride.

About 84 city governments nationwide forbid small-engine cars from entering downtown areas during rush hours.

In Beijing, for example, automobiles with engine capacity lower than 1 litre are not allowed on Chang'an Avenue the main east-west road across the capital or on the fast lane on some expressways.

Such restrictions are unreasonable, especially at a time when oil prices keep rising, Liu said.

A few months ago, Premier Wen Jiabao urged "all regulations that suppress the development of economy cars be dropped" as part of