New tax system won't ease burden for car owners, says head of automakers' lobby group

Car owners in Japan have been shouldering unfair levies and a new tax to replace the current car acquisition tax next year will not ease the burden, said Fumihiko Ike, chairman of the nation’s biggest automakers’ lobby group.

Under the government’s plan, the acquisition tax currently paid on all new vehicle purchases will be phased out when the consumption tax is raised from the current 8 percent to 10 percent in April 2017.

Instead, the government will introduce a new variable tax of up to 3 percent on new cars depending on the car’s fuel efficiency.

Ike, who heads the Japan Automobile Manufacturers Association, said the new levy was nothing more than a replacement of the existing acquisition tax.

Currently, consumers pay either 2 or 3 percent of the car’s purchase price as acquisition tax when they buy a vehicle.

This is separate from the sales tax, which Ike claims equates to “double taxation.” Consumers, however, get a tax reduction or exemption if they buy environmentally friendly cars.

“We have been asking (the government) to stop this dual taxation,” Ike said during an interview on Dec. 22.

“The tax burden (for car owners) won’t be eased at all,” said Ike, who is also the chairman of Honda Motor Corp., because consumers will still have to pay a tax in addition to the sales tax.

The revenue from the automobile acquisition tax totals about ¥110 billion annually, while the new tax system is expected to rake in ¥89 billion a year.

Since municipal governments pocket about 70 percent of the acquisition tax revenue, local government leaders have sought an alternative revenue source when the acquisition tax is abolished.

People who buy environmentally friendly cars that do not emit greenhouse gases, such as electric, plug-in hybrid and fuel-cell cars, will be exempt from the new tax.

Tax rates for other cars will be between 1 and 3 percent based on the vehicle’s fuel efficiency. Car owners will also be required to pay an auto tax and car weight tax annually, as they are now.

Heavy taxation of car owners has been discouraging people from purchasing cars in Japan amid negative consumer sentiment since the sales tax was hiked to 8 percent in April 2014, Ike said.

Ike said he hoped the government will take measures to ensure that the domestic car market will not be harshly affected by the planned sales tax hike in April 2017.

Touching on the outlook of the global market, Ike said although the U.S. Federal Reserve recently raised interest rates for the first time in nine years, the North American car market is likely to remain stable.

“Consumers in the U.S. are sensitive to interest rates, but I don’t think the market will shrink very rapidly,” said Ike.

While it’s still too early to tell with any degree of certainty, the rate hike in the U.S. will probably not drastically change markets in other regions, Ike added.

Although the economy is expected to slow further in China, Ike said the outlook is still bright for that country as opportunities there remain huge.