Japan to Suspend 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 through the freeze of 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. 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 leadership race earlier this year, Prime Minister Sanae Takaichi, also LDP president, 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. Also under consideration is a plan to make EVs and plug-in hybrid vehicles subject to an additional levy when automobile weight tax is paid at the time of mandatory vehicle inspections. The government and the coalition aim to introduce this in May 2028. The existing program to cut the automobile weight tax in accordance with fuel economy is expected to 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.]