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Japan Eyeing 2-Year Freeze of Auto Environmental Performance Tax
Nippon | English | News | Dec. 5, 2025 | Regulation
Japan’s government and ruling coalition, including the Liberal Democratic Party and the Japan Innovation Party, are considering a two-year suspension of the environmental performance tax on automobiles. This move aims to stimulate domestic vehicle demand amid challenges faced by the Japanese auto industry due to high tariffs imposed by the U.S. administration under former President Donald Trump.
The tax, which varies based on a vehicle’s fuel efficiency and can be as high as 3% of the purchase price, is levied on automobile buyers and has faced calls for abolition from the industry. Prime Minister Sanae Takaichi, who won the LDP leadership election earlier this year, pledged to suspend this local tax for two years in response to the impact of U.S. tariffs. The tax freeze is expected to be included in the fiscal 2026 tax system reform program, following discussions planned for later this year.