Japan to tighten rules on tax incentives given to fuel-efficient cars

The Japanese government announced plans to tighten the tax breaks for fuel-efficient vehicles.

Currently, 90% of new cars sold in Japan qualify for “eco-car tax incentives.” The proposal is to tighten the rules by next spring and to reduce the coverage to only 70% of new cars. Vehicles would have to operate at roughly 20 kilometre (km) per litre of fuel at a minimum to qualify for the tax incentive, which is equivalent to the average fuel efficiency standards to be instituted in Japan in fiscal year 2020.

The provisions will be included in the tax reform package being compiled by the Liberal Democratic Party’s tax-research commission and will apply to the motor vehicle tonnage tax levied during periodic, legally mandated inspections.

The tax incentive will be extended, however, for two years beyond the original expiration date of April 2017, the Nikkei reported.

Starting May 2017, the tax incentive will apply to vehicles that exceed by 10% or more the fuel efficiency standards set in fiscal 2015, which calls for an average of 17 km per litre. That will stay in effect for a year and include about 80% of new cars. The 2015 fuel economy standards will no longer be considered for tax breaks starting in May 2018.

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 mini-cars and to only give tax incentives to vehicles that are at least 10% more fuel-efficient than fiscal year 2020 standards.