Beijing, Oct 9 (IANS): China's vehicle-purchase tax cut for passenger vehicles can benefit both buyers and automakers, said rating agency Moody's in its latest Credit Outlook.

The government halved the vehicle-purchase tax to five percent for passenger vehicles with engines that are 1.6 liters or smaller. The tax cut will be in effect from October 1, 2015 to December 31, 2016, Xinhua news agency reported.

The tax cut followed weak year-to-date automotive sales in China, with sales in the first eight months flat from a year earlier, versus 6.8 percent growth in 2014, according to the China Association of Automobile Manufacturers.

Passenger vehicles accounted for 85 percent of total sales, and 68 percent were equipped with engines that were 1.6 liters or smaller.

Buyers pay vehicle-purchase tax, applied to vehicle prices before the 17 percent value-added tax. The tax cut reduces the purchase price for qualifying vehicles by lowering one-off tax expenses.

Moody's expects the tax cut to be attractive to price-sensitive buyers and said the limited duration of the tax cut will entice buyers to move up their purchases.

Automakers with higher exposure to qualifying vehicles as a percentage of total sales and a focus on price-sensitive consumers will benefit most.

Of the two Chinese automakers that Moody's rates, Geely Automobile Holdings Limited will likely benefit more than Beijing Automotive Group Co. Ltd., as Geely's key models have smaller engines and lower sales prices.