TOKYO -- The Japanese government is toughening fuel efficiently requirements for motor vehicle tax breaks, but it is also softening the blow by implementing the overhaul over two years.
The provisions will be included in the reform outlines to be compiled by the Liberal Democratic Party's tax-research commission on Thursday. They will apply to the motor vehicle tonnage tax levied during periodic, legally-mandated inspections. A qualifying fuel-efficient vehicle receives a tax break ranging from 25% to 100%. This incentives program will also be extended for two years beyond the original expiration date of April 2017.
Currently, 90% of new cars sold qualify for the so-called eco-car tax incentives. The original proposal called for qualifying fuel economy standards to be tightened starting next spring and to apply to 70% of new autos. Applicable vehicles would be required to run at roughly 20km per liter of fuel at a minimum -- equivalent to the average fuel efficiency standards to be instituted in fiscal 2020. Now the central government will raise those standards gradually in light of the effects such a change will have on the economy, among other factors.
First, starting in May 2017, the tax subsidies will apply to vehicles that exceed by 10% or more the fuel efficiency standards set in fiscal 2015, which call for an average of 17km per liter. That will stay in effect for a year and include about 80% of vehicles. The 2015 fuel economy standards will no longer be considered for the tax breaks starting in May 2018, and the benefits will apply to 70% of new vehicles.
The percentage of cars receiving full tax exemptions is also expected to decline in stages, from 40% to around 30%.
The requirements will also tighten on reductions for the annual vehicle tax levied on green cars, with the share of qualifying new vehicles dropping to 50%. The aim is to unify standards applying to regular vehicles and minicars, and to have vehicles that are at least 10% more fuel efficient than fiscal 2020 standards receive tax breaks.
The acquisition tax breaks for eco-cars will also apply to new vehicles that meet fiscal 2020 fuel economy standards. That will be implemented in stages over two years. The share of new vehicles qualifying for the tax cuts will shrink from 90% to 70%. The incentives in fiscal 2017 will apply to autos at least 10% more fuel efficient than fiscal 2015 standards. Full tax exemption will be stiffened for autos exceeding fiscal 2020 standards by 40% or more. That share of qualifying new vehicles will also decrease from 40% to 30% over two years.