Japan’s ruling party bids to replace car sales tax with new levy

Bloomberg, JIJI

The country’s ruling Liberal Democratic Party is proposing a new car levy to replace the auto acquisition tax from April 2017, the date set by Prime Minister Shinzo Abe’s government to further increase the sales tax.

The new plan will call for four grades of tax rates from zero to 3 percent for regular vehicles and will be based on their fuel efficiency.

The plan, approved at a meeting of senior members of the LDP’s Research Commission on the Tax System on Wednesday, will be included in a fiscal 2016 tax system reform package to be compiled by the LDP and coalition partner Komeito as early as Thursday.

Minicars and commercial vehicles will be levied from zero to 2 percent.

Revenue from the tax would be about ¥89 billion ($725 million), according to papers obtained by Bloomberg. In fiscal 2015, total revenue from the current automobile acquisition tax is projected at ¥109.6 billion.

The new levy will be similar to the current vehicle acquisition tax system, which applies lower rates on green vehicles.

Japan’s auto industry has campaigned for scrapping the car acquisition tax as the government plans to increase the sales tax further to 10 percent in 2017 amid a decline in demand after the levy was raised to 8 percent last year.

Electric cars, fuel cell vehicles and plug-in hybrids will be exempted from being levied, according to the plan, as Japan is trying to promote fuel-efficient vehicles and build a “hydrogen-based” society.