FOCUS: Ruling-Opposition Talks on Gasoline Tax Cut Stall amid LDP Race

Tokyo, Oct. 1 (Jiji Press)–Talks between Japan’s ruling and opposition parties have stalled over a proposal to scrap the provisional gasoline tax surcharge. The slowdown is widely attributed to the political lull caused by the ruling Liberal Democratic Party’s leadership election, slated for Saturday, to choose a successor to outgoing Prime Minister Shigeru Ishiba. Separately, in discussions on tax system reform for the fiscal year starting in April, another key point of contention is expected to be whether to abolish the environmental performance-based levy, imposed at the time of vehicle purchase, according to fuel efficiency. Japan’s provisional gasoline surcharge of 25.1 yen per liter, levied on top of the standard tax of 28.7 yen, was introduced in 1974 as a temporary measure aimed primarily at funding road development. In fiscal 2009, the add-on was folded into general revenues and no longer earmarked for specific purposes. Despite its “provisional” label, the surcharge has remained in place for decades, drawing sustained criticism. In late July, six parties from both the ruling and opposition camps agreed to abolish the extra tax “at the earliest possible time within this year.” The LDP-led ruling coalition had been reluctant to move quickly. The same month, however, it suffered crushing losses in the election for the House of Councillors, the upper chamber of parliament, to opposition parties that campaigned on ending the surcharge. Having already lost its majority in the House of Representatives, the lower chamber, last year, the ruling camp had little choice but to yield. Abolishing the provisional tax surcharge would reduce annual tax revenue by about 1 trillion yen, but negotiations between the ruling and opposition parties over replacement funding reached an impasse. The ruling coalition argues that a permanent revenue source must be secured, potentially through tax increases. The opposition, wary of adding to public burdens, rejects that approach and instead proposes using any upside in tax receipts and tapping the surplus in the foreign exchange fund special account, which is used for currency market interventions. The opposition, which hopes to abolish the add-on gasoline tax by Nov. 1, has proposed gradually expanding existing gasoline subsidies until the tax is gone, aiming to prevent sharp price swings. Still, ruling-opposition talks on Sept. 5, viewed as the last chance to launch the measure, ended without agreement. Momentum shifted further after Ishiba announced his resignation on Sept. 7, triggering an internal race for the LDP presidency and effectively bringing negotiations to a halt. Opposition parties indicate that they will move to introduce their own bill to abolish the add-on tax if no deal is reached. Yet the political timetable remains unclear, including when an extraordinary session of parliament will be convened. The Ministry of Economy, Trade and Industry has called for a “drastic overhaul” of vehicle-related taxes levied at purchase and during ownership, in its request for next fiscal year’s tax system reform. The government and ruling coalition are expected to seek a conclusion in the compilation of the year-end tax reform outline, following discussions by the ruling parties’ tax system research panels. The ministry’s proposal includes abolishing the environmental performance-based automobile and minivehicle taxes. This levy, a local tax charged at the time of purchase, is calculated in line with a vehicle’s fuel efficiency and can amount to up to 3 pct of the vehicle’s price. On the other hand, the internal affairs ministry, concerned about declining local tax revenues, and the Environment Ministry, focused on decarbonization, have taken a cautious stance on the proposal, signaling alignment difficulties ahead. During vehicle ownership, drivers pay annual vehicle and minivehicle taxes based on engine displacement, as well as an automobile weight tax at the time of inspection. The industry ministry has also advocated a simpler tax system, with an eye to integrating these levies. In the ongoing review of vehicle taxation, the treatment of electric vehicles is expected to be a central issue. EVs currently benefit from various tax exemptions and reductions due to their strong environmental performance. Because they are typically heavier than gasoline-powered models, however, they may contribute more to road wear. With this in mind, the ruling coalition’s tax panels may consider measures that would increase the tax burden for EVs. END [Copyright The Jiji Press, Ltd.]