Chairman Yoichi Miyazawa of the Liberal Democratic Party (LDP) Research Commission on the Tax System indicated during an interview with Mainichi Shimbun on Sept. 6 that a reduction of taxes for cars and houses, which are major purchases that have a significant economic impact, is being considered to mitigate a slowdown in consumption after the consumption tax is increased to 10% in October next year.
Most of the auto-related taxes are local taxes, so a tax cut may reduce the local governments’ revenues. However, Miyazawa pointed out that “the FY19 and FY20 budgets will have allocations for measures to deal with the consumption tax hike, so it should be possible to compensate the local governments (for the revenue shortfall).” He is in favor of short-term tax cuts to stimulate consumption. The key issues will likely be an extension of the eco-car tax break and the temporary freezing of the “ecological performance discount” system, a system for taxing car purchases based on fuel efficiency which is slated to be introduced when the consumption tax goes up.
However, the auto industry is also demanding a permanent reduction of the annual automobile tax. Miyazawa gave the following comments: “I understand that Japan’s automobile tax is slightly higher than in other countries. We will discuss whether there are good ideas for reducing taxes without affecting the local governments’ finances,” indicating he is amenable to discussing this matter. (Abridged)