Eco-car mileage raised for new tax break system in Japan

This photo, taken on Feb. 9 at a dealer of Daihatsu in Shibuya Ward, Tokyo, shows minivehicles which the tax break system covers.

Fuel efficiency standards for eco-friendly cars have become stricter under a new tax break system launched in April.

Launched in 2009, the tax break system covers electric vehicles, minivehicles and other next-generation automobiles, as well as cars that meet fuel efficiency and emissions standards set by the Land, Infrastructure, Transport and Tourism Ministry.

The changes affect the automobile acquisition tax, which is imposed at the time of purchase, and the weight tax, which is collected upon purchase as well as at safety inspections. The rates are lower for vehicles with better fuel economy, with some even eligible for full exemption.

Previous rates were based on the so-called fiscal 2015 standard. But with the advent of this fiscal year, the stricter fiscal 2020 standards have been adopted. The rate reduction for the acquisition tax took effect in April, while that for the weight tax is set for this month.

The Tokyo-based Japan Automobile Manufacturers Association offers an example of how fees are calculated based on a car weighing less than 1.5 tons that is purchased for private use at a net price of ¥1.8 million (S$20,000). If it surpasses the fiscal 2020 standard by 20 per cent, the car is exempt from an acquisition tax of ¥48,600 as well as a weight tax of ¥36,900. If it surpasses the standard by 10 per cent, the two fees are reduced by ¥72,000 in total.

Prospective automobile buyers are cautioned that there may be variations in the rates of reduction. "[Consumers should] be aware that a single vehicle type can qualify for different rates according to weight and transmission type," explained Nobuyuki Takahashi, an official of the association. "It's important to check with your dealer at the time of purchase."

"In selecting a type of car to purchase, the tax break amount can be a decisive factor," said tax accountant Takuya Tanaka. It might be a good idea to check automakers' websites, where potential customers can calculate reduction rates for eco-friendly cars.

For those who already own eligible vehicles, the weight tax may drop from that at the time of purchase.

"In many cases, tax burdens will increase under the stricter standards," he said. "But the overall cost of owning a car can still be reduced by reevaluating your auto insurance policy."

Drivers can learn more about the changes under the new system by checking the transport ministry website, where a list of relevant vehicles was posted in May. Information can be found using the vehicle type and classification number listed on safety inspection certificates.

Minicars affected

Owners of minivehicles must also make note of yearly auto taxes.

Such car owners must pay ¥10,800 annually for minivehicles purchased in April or later, a sharp increase from the previous ¥7,200. But to avoid an unfair tax hike, minivehicles are also eligible for eco-car tax breaks. The reductions apply to minivehicles with fuel efficiency equal to that of hybrid cars, but are limited to the following fiscal year of purchase.

"Some minicars are not subject to eco-car tax breaks," said an employee of an automaker. "Keep an eye out for the debut of new vehicles with better fuel efficiency, as they will soon become available."

Such tax reductions have been already applied to auto taxes for vehicles other than minicars, but the rates have not changed this fiscal year.