The cut in the environmental tax on automobiles might again be extended to help prop up the economy during the coronavirus epidemic, sources said.
The tax break is set to expire next March and a study is being conducted on whether to include the second extension in the industry ministry’s tax system reform requests for fiscal 2021, which will be compiled next month, the sources said Sunday.
The issue is likely to undergo a fuller discussion later this year during the ruling coalition’s work on tax reforms.
The environmental tax, a local levy, is collected when automobiles are purchased. The tax rate is lower for fuel-efficient vehicles, standing at zero percent for electric and fuel cell vehicles.
The tax rate was cut by 1 point when the consumption tax was raised to 10 percent from 8 percent on Oct. 1 last year.
The tax break was initially set to expire at the end of September, but the ruling coalition decided in April to extend it six months until the end of March 2021 after consumption slumped amid the coronavirus crisis.
Since it is unclear when the epidemic will subside, the automobile industry has found itself in dire straits. Even if the virus is contained by the end of March, the economy is expected to take more time to recover.
The government is increasingly concerned that if the environmental tax break is scrapped at the end of March 2021, the move may be perceived by consumers as a de facto tax hike, which will affect the entire economy severely.
In the meantime, some lawmakers in the ruling bloc expect the government to begin drawing up additional economic stimulus measures from this autumn or later. In that case, full-scale discussions on the second extension of the auto tax break may start before late this year, people familiar with the matter said.
The government may also study the possibility of reducing other automobile-related taxes, they said.
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