Japan Panel May Propose Taxing Autos by Emissions, Chairman Says

A Japanese panel said it’s close to recommending that carbon dioxide emissions be included in calculating a car levy as part of an overhaul of the nation’s tax system.

The advisory group, appointed by the Ministry of Internal Affairs and Communication, will probably propose that the current automobile tax be based on emissions together with engine size to encourage sales of environmentally friendly vehicles, Naohiko Jinno, chairman of the panel, said in an interview this week, without being more specific. The proposed new tax structure will be drafted as early as this month and submitted to the ministry, he said.

The annual levy may be changed so that motorists pay a higher duty in the first year of ownership and the panel is also studying the level of taxation on minicars, with many members opposed to maintaining the current favorable tax treatment, he said. An auto acquisition tax would also probably be abolished as part of the overhaul, resulting in an estimated loss of 190 billion yen ($1.9 billion) in income to Japan’s local governments, according to Jinno.

The panel discussions are part of a revamp in Japan’s taxation system following a decision by Prime Minister Shinzo Abe’s government to go ahead with an increase in national sales tax. The reforms to the tax code have to be approved by early next year.

In Japan, the automobile tax for cars ranges from 29,500 yen ($300) to 111,000 yen a year, depending on engine size. For minicars, it’s 7,200 yen annually, according to the transport ministry.

Automakers have been calling for the government to provide tax relief as the last time Japan raised the sales tax, in April 1997, it helped trigger a 1 million-unit decline in domestic auto sales, according to the Japan Automobile Manufacturers Association.

In 1996, a rush in last-minute buying led to a 6 percent increase in vehicle sales to 7.29 million units in Japan. A year later, the market was cut to 6.28 million units. Since then, annual sales in the industry have remained below 6 million units.

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