Japan gov't mulls extending tax cuts for eco-friendly cars to spur demand

The Japanese government is discussing the idea of lengthening tax incentives for cars that are eco-friendly by one year, to tentatively end in March 2017 in a refresh bid to boost slumping domestic sales, local media reported Wednesday.

According to the reports, in twine with Japan's efforts to lower its carbon emissions, customers who purchase eco-friendly cars, such as hybrid and electric cars, by the end of March next year, could be given a tax break of between 50 and 75 percent in the following year.

The amount of tax reduction is calculated on the fuel efficiency of the car purchased, with electric cars qualifying for the highest breaks.

Minivehicles, whose fuel consumption and emissions are comparatively low, will also enjoy incentives of between 25 and 75 percent, government officials said, adding that Prime Minister Shinzo Abe will make a final decision by the end of the year as to whether or not the range and amount of tax breaks will be changed.

According to local media reports, the government's current deliberations have come at a time when it is planning a wholesale rethink of its vehicle taxation system, with ideas such as the scrapping of tax paid on cars that was added when Japan hiked its consumption tax by three percentage points, from 5 to 8 percent last April.

Local governments are in charge of issuing the tax rates every year, and the amounts charged can range from between 29,500 yen ( 247 U.S. dollars) and 111,000 yen per car, with the calculations based on the emissions of the particular car. Minivans, however, enjoy a flat rate of 10,800 yen a year.

Calls have been rife from the automobile industry and affiliated bodies for the government to lower its taxes on cars, but sources close to the matter said on Wednesday that as the government is intent on securing revenue from car tax, the extension of tax cuts for eco-friendly cars may be tricky. Endi