The government submitted a tax reform bill to the Diet Jan. 23 that includes a clause to continue the provisional higher rates imposed on auto-related levies for another 10 years, drawing opposition from the Democratic Party of Japan, which wants the higher rates that have been in place for more than 30 years abolished.
The DPJ’s proposal would result in lower pump prices, but many local governments fear the loss of road-related tax revenues would deal a heavy blow to their coffers.
Here are questions and answers about road-related tax revenues and the provisional tax rates that have become the hottest bone of contention in the current Diet session:
What are road-designated tax revenues and what are they used for?
Drivers and car owners pay several kinds of taxes earmarked for building and repairing roads. These include the gasoline tax, diesel collection tax, liquefied petroleum gas tax, auto acquisition tax and tonnage tax.
Known as road-designated tax revenues, they are major sources of income for both the central and local governments.
The gasoline tax, which goes to both the central and local government coffers, comes to ¥53.8 per liter.
In fiscal 2007, which ends on March 31, ¥5.61 trillion had been allocated for the road-related budget.
The Land, Infrastructure, Transport and Tourism Ministry claims road-related tax revenues are spent to improve the nation’s social infrastructure. Such usage includes planting greenery along main thoroughfares, burying power lines, removing snow and building bridges, in addition to constructing bypasses to reduce traffic jams and repairing sidewalks.
When were road-designated tax revenues established and why?
The petroleum tax was first designated road-related revenue in 1954 to secure funds to develop the poor road network as the nation struggled to rebuild after the war.
Kakuei Tanaka, who later became prime minister, came up with the idea when he was still a rank-and-file Liberal Democratic Party lawmaker.
In those days, cars were still extremely expensive, and collecting tax from wealthy car owners who could afford to pay was widely considered a clever way to amass a road construction budget.
The extra tax rates on gasoline and other car-related taxes, except the LPG tax, were introduced in 1974 as a temporary measure to promote further projects for road construction and repairs.
The rates have been increased up to 2.5 times over the fixed core rate. The temporary rates are reviewed every five years but have remained in place since their introduction. The current rates expire March 31.
What are the political parties’ positions regarding the special tax rates?
The LDP-New Komeito ruling bloc has submitted a bill that includes extension of the provisional rates for another 10 years, claiming many local governments are still in need of new roads or infrastructure improvements.
The ruling bloc argues that without the higher rates, road construction would be suspended in many parts of the nation where the road network is still insufficient.
If the provisional tax rates are eliminated, the central and local governments would lose a combined ¥1.6 trillion in resources, according to a government estimate.
The DPJ meanwhile wants the provisional rates abolished and have road-related taxes used for purposes other than road construction, so that local governments could spend the funds according to their needs.
Abolishing the provisional rates would slash gasoline prices by ¥25 a liter.
The DPJ says local governments could survive the revenue loss by revoking the expenses they are partly shouldering on projects carried out on instructions from the central government.
The largest opposition force also says there is still room to cut road construction costs as well.
The ruling coalition argues that road-related tax revenues can be used to fight global warming. But the DPJ says the government needs to revise the law or create a new law if it wants to use tax revenues for environmental purposes.
To ensure the provisional rates remain beyond their expiration, the LDP submitted a stopgap bill to the Lower House on Tuesday that would keep auto-related tax rates unchanged for a few months.
Why did the temporary provisional rates last more than 30 years and now become a major issue?
What was initially designed as a temporary rate has not been abolished for three decades because the construction industry has been a strong vote-gathering machine for the LDP, which has been in power for decades, says Yasuhiro Tase, a political science professor at Waseda University in Tokyo.
In 1993, when Prime Minister Morihiro Hosokawa formed a brief non-LDP coalition administration, the rates were not up for debate because they were in the middle of an extension period, Tase said.
Whenever a national election takes place, LDP lawmakers rely on their local-level assembly members to promote their campaigns.
Many of those assembly members have strong ties with local general contractors.
They expect lawmakers to get the central government to steer as many public works projects as possible their way.
Thus, road-tax revenues have been a key political tool for LDP politicians soliciting votes in their electoral districts.
Even if road projects were not actually necessary, it was a win-win situation for politicians and local businesses. Road construction would benefit local-level contractors who in return would vote for LDP lawmakers, Tase said.
“For the LDP conservatives, politics is about roads, and an election is also about roads,” he said.
“It is a fundamental basis of Japanese politics and a necessary evil.”
Since the DPJ-led opposition camp seized a majority in the Upper House last July, the provisional rates have become a point of hot debate, Tase said.
In addition to local governments losing revenues, what impact would abolishing the rates have on the public?
Several opinion polls show that a majority of voters would welcome lower gas prices at a time when oil prices are soaring.
However, Tase noted that although the current provisional rates expire March 31, it will be difficult for gas stations to cut gasoline prices because the gasoline tax is incorporated into the price when gas is shipped from oil distributors.
Tase speculates that gas stations might have to risk profits to satisfy customers who expect lower pump prices.