• Jiji

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The government and ruling parties are considering scaling back a tax break for clean diesel vehicles in fiscal 2021 tax system reform proposals, informed sources said.

Japan grants vehicle tax reductions and exemptions based on fuel efficiency. The proposals will also make the standards stricter.

The new measures will be included in the ruling party’s package of tax system reform proposals to be compiled in December.

Under the current system, clean diesel cars receive the highest level of preferential tax treatment as do electric vehicles, fuel cell vehicles, plug-in hybrid vehicles and natural gas vehicles.

Clean diesel cars have better fuel efficiency than normal diesel cars, but they nevertheless emit carbon dioxide. The category therefore may be removed from the top tier of preferential treatment.

Meanwhile, the government is expected to avoid raising vehicle taxes as a whole, as domestic and foreign demand for automobiles remains sluggish amid the novel coronavirus pandemic.

The government is also likely to extend a vehicle tax cut for environmentally friendly cars introduced in spring.

The measure reduces the taxes levied at the time of an automobile purchase by 1 percentage point from the maximum 3% of the acquisition price.

The tax cut, adopted to cushion the impact of the October 2019 consumption tax hike, has been extended by six months until March 2021 due to the coronavirus crisis.

If extended again, the measure will be in place throughout fiscal 2021.

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