Auto industry, local governments wrangling over new car tax

Nov 28 2015

Standard family cars will be taxed from 3% of the purchase price at six 0.6 point interval brackets, according to the proposal drawn up by the Ministry of Internal Affairs and Communications. Minicars and commercial vehicles will have five brackets from 2%. The new system, pushed by cash hungry localities, is set to be enacted in April 2017, the same time the consumption tax will increase to 10%.

Under the current car acquisition tax, the government gives tax reductions for green vehicles graded to fuel efficiency. There are six levels ranging from a 100% tax cut to none. The new tax system will be similar to the old system, and local governments will collect the revenues as do under the current tax. The internal affairs ministry estimates the new system will generate 100 billion yen ($810 million) in annual revenue, the same level as the current tax.

That the new tax system is almost identical to the old one is the result of the long running tug of war between the auto industry and local governments.

Three years ago, auto industry officials worried that hiking the consumption tax would push down sales exerted their influence over the ruling party. The government stated in fiscal 2013 tax reform plans that the car acquisition tax would be abolished when the consumption tax is raised to 10%. But after local governments raised concerns about the loss in tax revenue, the government promised in fiscal 2014 tax policy to come up with new taxes to replace the car acquisition tax.

The antagonism between the auto industry and local governments runs deep. On Wednesday, local governments such as Tokyo and industry groups like the Japan Automobile Manufacturers Association met to discuss the new car tax. The local governments say a tax collection mechanism will not be put together by April 2017 if the new tax plan is not finalized until next year, according to a representative of the Tokyo Metropolitan Government. The local governments want the tax plan approved by year-end to be included in taxation outlines for fiscal 2016.