DPJ to propose abolishing Japan’s vehicle acquisition levy as sales tax hike looms

JIJI

The Democratic Party of Japan’s tax panel is set to propose abolishing the vehicle acquisition tax by fiscal 2014, sources said Saturday.

The panel, chaired by former Finance Minister Hirohisa Fujii, believes that ending the levy, which is imposed on auto purchases on top of the sales tax, is inevitable since the consumption tax is set to be hiked to 8 percent in April 2014 and to 10 percent the following year.

Scrapping the vehicle acquisition tax, currently collected by prefectural governments, is aimed at shoring up domestic car sales by eliminating double taxation on vehicle purchases. The panel aims to include the plan in a tax reform package for fiscal 2013 that is expected to be drawn up by the end of this year, according to the sources.

The DPJ and two largest opposition parties, the Liberal Democratic Party and New Komeito, have agreed on a drastic review of the vehicle acquisition tax by fiscal 2014, in line with the sales tax hike.

As the levy is a key revenue source for prefectural governments, the panel is considering securing alternative funding sources for local authorities, possibly by increasing tax grants from the central government.

Yet the internal affairs ministry and local governments oppose this idea because of the possibility of the central government cutting back on such grants.

Legislation to eliminate the vehicle acquisition tax and the vehicle weight tax, which is levied by the central government, failed to clear the Diet last year. Instead, the weight levy was reduced and subsidies for purchases of fuel-efficient vehicles reintroduced to spur auto sales.