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The Chinese Government may cut the compact car consumption tax on and raise the tax on sport-utility vehicles to help reduce energy usage.

Compact passenger cars with engines of between 1 and 1.5 liter, such as FAW’s Xiali N3, will have a 1 percent consumption tax, according to a proposal by the National Development and Reform Commission (NDRC). Vehicles with engines larger than 4 liters, such as Toyota’s Land Cruiser will be taxed at 20 percent of the car’s price.

The government is trying to encourage consumers to pick vehicles with smaller engines to reduce fuel consumption.

The changes may spur demand for GM’s Spark and Suzuki’s Alto, said Zhang Xin an analyst at Guotai Juanan Securities.

“The change may benefit makers of small vehicles and discourage private customers from buying cars with large engines,” said Zhang. He said imported luxury cars, such as DaimlerChrysler AG’s S-Class and Audi AG’s A8 may have a slip in sales.

The NDRC also recommended the government reduce purchase tax to as little as 5 percent of car prices from the current 10 percent. It recommended the introduction of a fuel tax as soon as possible and eventually phasing the purchase tax out after the introduction of fuel tax.