The fiscal year starting in April will not see the introduction of a contentious environment tax, thanks to strong opposition from the business community and from ruling party lawmakers who hope to prevail in next July's Upper House election, government sources said Monday.
The Democratic Party of Japan-led government will probably keep some provisional gasoline and other automobile-related taxes intact next year, backpedaling on a promise to abolish them, while meanwhile exploring the possibility of introducing an environment tax in fiscal 2011 or later, the sources said.
With the decision to shelve the environment tax, Prime Minister Yukio Hatoyama's Cabinet will probably find it harder to raise enough money to fund its key policy pledges amid a shortfall in tax revenue.
The complete abolition of gas- and auto-related taxes would lead to a shortfall of about ¥2.5 trillion in national and local tax receipts.
The Cabinet is trying to decide on the specifics of tax reforms for fiscal 2010 by the end of this week.
Earlier this month, Deputy Prime Minister Naoto Kan, Finance Minister Hirohisa Fujii and internal affairs minister Kazuhiro Haraguchi agreed to pursue introduction of an environment tax in fiscal 2010.
The Environment Ministry wants the levy starting next April so it can reap its share of the ¥2 trillion it is supposed to generate in new revenue.
But Hatoyama has said he is wary of levying the tax too soon in light of its negative impact on businesses and people's daily lives.