The German government will grant tax relief for electric or hybrid company cars, as the cabinet decided on a large scale subsidy on Wednesday, reports Xinhua from Berlin.

In the past, employees who drive company cars privately had to file a monetary benefit of 1 percent of the car's official list price. For electric and hybrid vehicles, this tax rate will be halved to 0.5 percent in the future. The new regulation will apply to company cars purchased or leased between Jan. 1, 2019 and Dec 31, 2021.

The tax reductions are expected to boost demand for electric vehicles that is still low in Germany.

"This will also enable an active second hand car market to establish itself. This makes e-vehicles cheaper and more interesting for a broad customer group," the German transportation minister Andreas Scheuer (CSU) told the German press agency (dpa).

The German Association of the Automotive Industry (VDA) rated the tax advantage for electric company cars as a "good contribution" to the market ramp-up of electric mobility. The new law will become particularly relevant in 2019 and 2020 when a large number of new models will come onto the market, according to VDA.

New registrations of electric cars have recently increased, but the overall market share in Germany still remains low. The main obstacles are the relatively high price of the vehicles, the short range and an insufficient charging infrastructure. Despite the emissions scandal that has engulfed the German car industry, diesel vehicles are still the most popular company cars.

The current taxation is considered financially unattractive due to the high purchase costs of electric or hybrid vehicles. With this amendment, the German government is following their coalition agreement on a reduced rate for electric company car taxation.

The German traffic association (VCD) criticized the decision as not effective. "Environmentally friendly vehicles such as bicycles would not benefit from the planned tax relief," said Gerd Lottsiepen, transport policy spokesman of VCD.