Japan's Ruling Party Bids to Replace Car Sales Tax With New Levy

  • Proposes four grades of tax rates for regular vehicles
  • Fuel-cell vehicles, electric cars, hybrids may be exempt

Japan’s ruling Liberal Democratic Party is proposing a new car levy to replace the auto acquisition tax from April 2017, the date set by Prime Minister Shinzo Abe’s government to further increase the sales tax.

The new plan, to be submitted Wednesday, will call for four grades of tax rates from zero to 3 percent for regular vehicles and will be based on their fuel efficiency, according to documents obtained by Bloomberg. Minicars and commercial vehicles will be levied from zero to 2 percent. Revenue from the tax would be about 89 billion yen ($725 million), according to the papers.

The new levy will be similar to the current vehicle acquisition tax system, which applies lower rates on green vehicles. Japan’s auto industry has campaigned for scrapping the car acquisition tax as the government plans to increase the sales tax further to 10 percent in 2017 amid a decline in demand after the levy was raised to 8 percent last year.

Electric cars, fuel-cell vehicles and plug-in hybrids will be exempted from being levied, according to the plan, as Japan is trying to promote fuel-efficient vehicles and build a “hydrogen-based” society. The plan will be submitted to the ruling party’s special tax investigative committee.

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