The Ministry of Finance and the State Administration of Taxation announced to resume levying a 10-percent purchase tax on vehicles with engine sizes of 1.6 liters or less beginning in 2011.

The government halved the purchase tax from 10 percent to 5 percent on smaller cars in 2009 to spur the use of clean and fuel-efficient cars and bolster domestic consumption amid the economic downturn. The tax rate was then raised to 7.5 percent in 2010.

The generous policy incentives have injected fresh steam into the auto market. In 2009, China overtook the United States to become the world's largest auto market by selling 13.65 million vehicles, up 46 percent year on year.

Auto sales are expected to hit 18 million units in 2010 as the sales from January to November this year reached 16.4 million units, according to data from the China Association of Automobile Manufacturers.

"China introduced the favorable tax policy in 2009 as an effort to combat the ripple effect of the financial crisis. But now the policy needs to be adjusted since the country has emerged from the economic quagmire," said Liu Shangxi, Deputy Director of the Research Institute of Fiscal Science under the Ministry of Finance.

The withdrawal of stimulus is likely to take some steam out of the auto market in 2011, said Jia Xinguang, a renowned independent auto analyst.