Japan to Freeze Vehicle Environmental Performance Tax for 2 Yrs

Tokyo, Dec. 16 (Jiji Press)–Japan’s government and ruling coalition plan to suspend the tax levied on automobiles in accordance with their fuel efficiency for two years from fiscal 2026, it was learned Tuesday. The government and the coalition of the ruling Liberal Democratic Party and the Japan Innovation Party (Nippon Ishin no Kai) aim to promote vehicle sales by freezing the environmental performance tax at a time when the domestic automobile industry is concerned about the impact of the high tariff policy of U.S. President Donald Trump’s administration. A resultant annual local tax revenue drop of an estimated 190 billion yen will be covered fully with state funds. This is one of measures planned for automobiles in the fiscal 2026 tax system reform package, slated to be compiled by the end of this month. Whether to lift the freeze in fiscal 2028 will be decided in the fiscal 2027 tax system reform discussions. The levy was introduced to encourage the purchase of vehicles with smaller environmental burdens, with the tax rates set at zero to 3 pct of the vehicle prices according to their fuel efficiency. During the LDP’s presidential race earlier this year, Prime Minister Sanae Takaichi, who won the election, showed her intention to put the tax on hold for two years, while local governments have raised opposition as the measure would reduce their tax revenue. Meanwhile, the central government and the ruling coalition plan to introduce in or after fiscal 2028 a system of increasing the automobile tax, which is imposed on vehicle owners every year, for electric vehicles commensurate with their weight. Specifics will be formulated through the fiscal 2027 tax system reform talks. The government and the coalition also plan to make EVs and plug-in hybrid vehicles subject to an additional levy according to their weight, with an aim to introduce this in May 2028. Following the spread of EVs, which weigh more than other vehicles and therefore can hasten roads’ deterioration, calls for introducing a fresh tax on such vehicles to generate revenue to cover costs of road repairs and maintenance have increased. The new levy, covering private EVs and PHVs, will be added to the automobile weight tax paid at the time of mandatory automobile inspections. The rate of the additional levy will be decided in the course of the fiscal 2027 tax system reform discussions, based on the average tax burden on gasoline vehicle users. Special consideration is expected to be given to EVs lighter than the average vehicle weight so that the tax burden on such vehicles will not be too heavy, from the perspective of popularizing eco-friendly cars. The existing program to cut the automobile weight tax in accordance with fuel economy will be extended for two years beyond the currently scheduled expiration at the end of April 2026. But the government and the ruling camp are considering toughening the eligibility criteria. END [Copyright The Jiji Press, Ltd.]