Japan Car Demand to Drop 16% as Tax Increases, Lobby Says

March 20 (Bloomberg) -- Japanese auto deliveries will drop 16 percent in the year starting April 1 as a sales-tax increase damps demand, an industry group estimates.

Sales will probably fall to 4.75 million units in Japan, the world’s third-largest auto market, as the levy rises to 8 percent from the current 5 percent, the Japan Automobile Manufacturers Association said in a statement today.

Japan’s first sale tax increase in 17 years, intended to help repay debt, is expected to dent consumption from cars to televisions, posing a challenge to Prime Minister Shinzo Abe’s ambition to spur growth. Rush buying before the April 1 increase helped boost vehicle sales 15 percent from a year earlier in February, a sixth straight monthly increase.

Japan plans to cut its vehicle-purchase tax to 3 percent from 5 percent to cushion the effect of the sales tax increase, and to abolish the purchase levy when the nation’s sales tax is raised to 10 percent as planned for 2015.

To contact the reporter on this story: Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Dave McCombs