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Japan top automakers want car taxes axed

The Yomiuri Shimbun

Publication Date : 31-10-2012

 

Top executives of Japan's three biggest automakers have jointly called for two vehicle taxes to be scrapped in a bid to boost ailing sales, although their proposal has disturbed governments that want to retain the stable tax revenue streams.

"The tax burden on motor vehicles in Japan is about 50 times heavier than in the United States, and that is extremely heavy and unfair for automobile users here," Toyota President Akio Toyoda said at a joint news conference in Tokyo. "Car-buyers' purses are not a horn of plenty."

Toyoda, who also is chairman of the Japan Automobile Manufacturers Association (JAMA), was sitting alongside Toshiyuki Shiga, chief operating officer of Nissan Motor Co., and Takanobu Ito, president of Honda Motor Co. and vice chairman of JAMA.

When buying a new automobile, the 5 per cent acquisition tax—a local tax—is levied on the vehicle in addition to the consumption tax. Furthermore, the tonnage tax, a national tax, is levied to cover the first three years before the statutory vehicle safety inspections, which are done every three years. The tonnage tax varies depending on the weight of the vehicle.

The tonnage tax was initially introduced on the premise that road users should pay for road improvement and maintenance. The auto industry, however, argues that it constitutes double taxation with the consumption tax.

The chiefs of Toyota, Nissan and Honda want the tonnage tax and vehicle tax abolished.

According to JAMA, when the consumption tax rate was raised to the current 5 per cent from 3 per cent in April 1997, domestic sales of new vehicles for fiscal 1997 plunged to 6.28 million units from 7.29 million a year earlier.

"If the consumption tax is raised to 10 per cent [in October 2015] with no cut in the acquisition tax, people buying a new vehicle will have to pay taxes equivalent to 15 per cent of the vehicle price," Ito said at the news conference.

Ito said some estimates show this could push domestic new vehicle sales below 4 million units per year.

"This would have dire repercussions for the national economy, including the loss of many jobs," Ito added.

This plea comes at a time when carmakers are recording falling sales in China and taking a battering from the yen's protracted appreciation, which makes exports more expensive.

No alternative revenue source

Revenue from the two taxes comes to about 910 billion yen (US$11.4 billion) a year. Their abolition would put a major dent in the revenue of both the national and local governments.

About half of the two tax revenues combined has become revenue sources for local governments. They provide a stable source of money especially for small cities, towns and villages. Consequently, many municipalities are firmly against axing the taxes, the variability of which by region is markedly low.

Some local government heads have said it would be "impossible" to discuss doing away with the two taxes unless alternative revenue sources are found first.

Finance Minister Koriki Jojima, for that matter, also is wary of abolishing the two taxes.

"Given the grave fiscal conditions of the central and local governments, any study of the two taxes' abolition should be conducted by giving full consideration to alternative stable fiscal resources," Jojima said at a news conference Monday.

In a meeting of the government Tax Commission last Thursday, a representative from the Association of Prefectural Governors opposed scrapping the two taxes, saying, "We should not review the two taxes without first securing revenue sources to make up for their abolition."

However, not all local governments oppose abolishing the taxes.

On Monday, a meeting of governors from eight prefectures, including Aichi and Hiroshima, where many automobile-related plants and head offices are located, adopted an emergency statement in favour of discarding the vehicle acquisition and tonnage taxes.

"If the auto industry's business performance deteriorates [as a result of the taxes], it will have adverse impacts on the economy and employment in our regions," the statement said.

Accord on reviews

In August, the ruling Democratic Party of Japan and the opposition Liberal Democratic Party and New Komeito reached an agreement on a comprehensive reform package of social security and tax systems, which included increasing the consumption tax to 8 per cent in April 2014. They also reached an accord on a "drastic review" of vehicle acquisition and tonnage taxes.

Tax revision discussions are expected to start in earnest soon and conclude toward the end of the year.

The talks will likely focus on:

The advisability of scrapping the vehicle acquisition tax, which brings in less revenue than the tonnage tax, and how to make up for any loss of revenue. Whether to reduce rates of tonnage and other taxes for environmentally friendly vehicles.

 

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