Broad perspective needed to review fairness of taxes on motor vehicles
How to review the current tax levies on motor vehicles has emerged as a major point of contention in discussions about next fiscal year’s tax system changes, which will culminate toward year-end.
The government and the ruling coalition parties of the Liberal Democratic Party and New Komeito must do their best to realistically resolve the issue by paying balanced attention to the necessity of securing tax revenues and the possible impact tax changes could have on the economy.
The ruling camp is committed to abolishment of the “automobile acquisition tax,” imposed at the time of purchasing a new motor vehicle, if the consumption tax rate is raised to 10 percent in October 2015 as planned.
Some fear the consumption tax hike could cause a drop in motor vehicle sales, slowing the pace of economic recovery.
It should be noted in this connection that the automobile acquisition tax has been under fire from various quarters for being a form of double taxation when combined with the consumption tax. Abolishing the acquisition tax is the right thing to do.
Revenues in fiscal 2013 from the automobile acquisition tax, a local tax, are estimated at ¥190 billion and play an important role as revenue sources of local governments.
The question in this connection is how to secure new sources of revenue to make up for revenue shortfalls caused by the planned abolition of the tax.
The Internal Affairs and Communications Ministry has proposed covering the shrinkage in tax revenue by raising the yearly minivehicle tax paid by minivehicle owners, which is now ¥7,200.
The tax burden on minivehicle users is about one-fourth that of owners of small passenger cars for private use with engine displacement of 1,000cc or less, which is ¥29,500 a year.
Respect ‘beneficiaries pay’
The ministry argues that the gap in the tax burdens is “unreasonably out of balance.”
Motor vehicles with engine displacement of 660cc or less are categorized as minivehicles. Recently, the differences between minivehicles and small passenger and other small vehicles have markedly narrowed in such terms as prices and fuel efficiency. Minivehicles have become increasingly popular, now accounting for about 40 percent of the sales of new vehicles.
The ministry-proposed review of the tax burden gaps between minivehicles and other motor vehicles is worthy of consideration.
Auto businesses and the Economy, Trade and Industry Ministry, however, have vehemently opposed the idea of the Internal Affairs and Communications Ministry.
Leaders of the motor vehicle industry argued in a recent news conference that the envisioned increase in the minivehicle tax would “make abolition of the automobile acquisition tax meaningless,” insisting that drops in tax revenues should be covered by tax levies on things other than motor vehicles.
The auto business leaders also stressed that minivehicles serve as “means of transport tied to the daily lives” of people who live in rural areas, where other means of transportation are meager.
It should be noted, however, that motor vehicles put a burden on roads, which require costly repairs and maintenance, and affect the environment. Coming up with revenue to fund repairs and renewal of older roads is a serious challenge for local governments.
It would be hard to make up for declines in revenue brought by the abolition of the automobile acquisition tax by additional taxes on non-vehicle products alone. It will be inevitable for minivehicle users to assume a heavier tax burden in accordance with the beneficiaries-pay principle.
With taxes related to motor vehicles amounting to nearly ¥8 trillion a year, a widely held opinion is that consumers’ motor vehicle taxes are unreasonably heavy.
There are also calls to expand tax breaks for highly efficient, environmentally friendly vehicles.
Besides addressing the issues of the automobile acquisition tax and the minivehicle tax, the government and the ruling coalition parties should consider the motor vehicle-linked tax system in its entirety when discussing what should be done to realize impartiality in taxation.
(From The Yomiuri Shimbun, Nov. 17, 2013)