* Unclear how much tax rate will be reduced from 10 pct
* Would be extended for full-year through 2017 - source
* Auto sales could decline if cut expires - analysts (Adds source comments, background)
By Jake Spring
BEIJING, Dec 14 (Reuters) - China will extend a tax cut on small-engine vehicles to 2017, two sources with knowledge of the matter told Reuters, a move that could prevent a predicted steep drop off in sales if the tax cut expires as planned.
It is unclear how much the rate will be reduced from the normal vehicle purchase tax of 10 percent under the extension. The government slashed the tax to 5 percent for vehicles with 1.6 litre engines and below in October 2015, saying the policy would expire at the end of 2016.
China’s auto market, the world’s largest by sales, struggled with weak sales in 2015 amid an economic slowdown before rebounding strongly thanks to the tax cut. Auto sales have risen 14.1 percent for January to November compared to the same period a year ago.
“We’re operating under the assumption that it will be extended,” said one of the sources, who was not authorized to speak to the media on the matter, adding that there was no doubt on the matter.
The second source said the policy would be extended for a full year through 2017.
China’s Ministry of Industry and Information Technology and Ministry of Finance did not immediately respond to faxed requests for comment.
An industry ministry official has said the government was considering extending the tax cut beyond the expiry at year’s end.
Analysts have warned sales could decline or be flat next year if the tax cut were allowed to expire, with the automakers’ association saying growth would be at most 2 percent in 2017 without the policy.
Volkswagen AG and other automakers had similarly said the tax cut expiring could negatively affect sales. (Reporting by Jake Spring; Editing by Muralikumar Anantharaman)