Environmental Policy

Report on Auto-Related Environmental Taxes_3. Taxation as an Environmental Measure Related to Vehicles

3. Taxation as an Environmental Measure Related to Vehicles

3-1 OECD Countries

Several OECD member countries already incorporate the idea of environmental conservation in their auto-related taxation scheme. Ways of doing this are diverse. Some countries determine tax rates according to the level of exhaust that causes air pollution, the level of CO₂ emissions, and/or fuel efficiency, while others carry out special tax reductions or tax exemptions on vehicles with low environmental loads, e.g. electric vehicles. There are also countries that impose relatively high tax rates on diesel vehicles as compared to gasoline vehicles.
Among OECD member countries, Germany, France and the United Kingdom incorporate into their tax system the concept of environmental conservation in the following manner:

(1) Germany
In Germany, automobile tax is levied throughout the course of vehicle ownership. For passenger cars, rates of automobile tax are determined for every 100cc of engine capacity in accordance with emissions standards (partially in relation to fuel-efficiency standards), and there are six different ratings of this tax. Tax rates for diesel vehicles are close to twice those for gasoline vehicles. For vehicles that are put on the market before new emissions standards, such as Euro-3, come into effect but that satisfy the standard, and for vehicles that are unusually fuel-efficient, tax credits are being offered for a certain period up to a certain amount, in order to encourage consumers to buy these vehicles. In cases in which criteria are met for both of these tax credits, both tax credits may be claimed in full.
For taxes on trucks, standard tax rates are determined in accordance with vehicle weight. In cases in which trucks meet emission and/or noise standards, the rates are set at lower level.

(2) France
France levies both automobile acquisition tax at the time of purchase and automobile tax throughout the course of vehicle possession. Rates of automobile tax are calculated according to the horsepower of the vehicle as determined by a formula in the Tax Law, which takes into account the amount of CO₂ emissions.
For electric vehicles, natural gas vehicles, and LPG vehicles, local governments are authorized to give full or partial tax credits. Also, owners of these vehicles are allowed a special write-down on income tax and corporate tax.

(3) The United Kingdom
In the United Kingdom, Vehicle Excise Duty is levied at the time of acquisition. In March 1999, extensive tax reform was carried out with regard to environmental conservation.
For passenger cars and mini trucks, the tax was 150 pounds across the board, and then was raised to 155 pounds in March 1999. In June, it was reduced to 100 pounds for vehicles with engine capacity of 1100cc or less. In autumn of the year 2000, tax rates will be determined based on levels of CO₂ emissions.
For trucks and buses, tax is basically determined based on weight and the number of axles, except for vehicles certified as low-emission vehicles. These vehicles are allowed tax deductions of up to 1000 pounds. Currently, new taxation schemes that are more environmentally-conscious are being considered.

3-2 Japan's Auto-Related Taxes

Present auto-related taxes in Japan include consumption tax and automobile acquisition tax levied at the time of purchase, and motor vehicle weight tax and automobile tax (lighter vehicle taxes for light cars) levied on vehicles periodically during the period of possession. As for vehicles in use, gasoline tax and local road tax for gasoline-powered vehicles and light oil delivery tax for diesel vehicles are imposed in addition to the consumption tax on fuel consumption. An outline of these taxes follows.

(1) Automobile Acquisition Tax (local tax)
Levied based on the acquisition price of the vehicle at the time of purchase. The revenue generated from this tax goes into prefectural and municipal governments' funds earmarked for roads.

(2) Motor Vehicle Weight Tax (national tax)
Fixed amounts of tax are levied according to vehicle weight for each type of automobile at the time of inspection. Three quarters of these revenues are allotted to the national government's general fund (80% of which goes to national funds earmarked for roads), and the remaining quarter goes to municipal governments' funds earmarked for roads.

(3) Automobile Tax, Light Vehicle Tax (local taxes)
Fixed amounts of taxes are levied each year according to total engine displacement and according to type of vehicle. Revenues from automobile tax are allotted to prefectural governments' general funds, and revenues from light vehicle tax go to municipal governments' general funds.

(4) Gasoline Tax, Local Road Tax (national taxes)
Both taxes are levied primarily according to the amount of gasoline removed from or received by a given area. The revenues of gasoline tax and local road tax are allotted to national governments' funds earmarked for roads and local governments' funds earmarked for roads, respectively.

(5) Light Oil Delivery Tax (local tax)
This tax is basically levied on the volume of light oil received. Revenues from this tax go to prefectural governments' funds earmarked for roads.

3-3 Current Situation of Japan's Auto-Related Environmental Taxation System

In FY 1975, the automobile acquisition tax on electric vehicles was lowered. Since then, the national government has taken a number of special taxation measures including expansion of types of vehicles subject to tax cuts and reduction of tax rates. Such measures were intended to promote environmental conservation in relation to automobiles. Some of the special measures concerning taxation adopted in FY 1999 are as follows:

(1) Incentive for Introduction of Low-Emission Vehicles
When a low-emission vehicle is purchased, the rate of automobile acquisition tax is reduced by 2.7% (in case of hybrid cars, the rate is lowered by 2.2%).
In addition, when a low-emission vehicle is purchased, the owner can benefit from either one of the following tax reductions in income and corporate taxes: either extra depreciation of 30% during the initial year, or a 7% tax deduction. (However, corporate bodies with capitalization of 100 million yen or more cannot select the latter).

(2) Incentive for Introduction of Fuel-Efficient Vehicles
Upon the purchase of a fuel-efficient vehicle meeting the requirements of the fuel-efficiency standards set forth in the Energy Conservation Law, automobile acquisition tax is computed after deducting 300 thousand yen from the actual purchase price. This measure came into effect in FY 1999.

(3) Incentive for Introduction of Automobiles Conforming to 2000 Emissions Controls
Upon the purchase of an automobile conforming to the more stringent standards of the automobile emission control measures to come into force starting in October 2000, the rate of the automobile acquisition tax is reduced by 1.0% if purchased before the new regulations come into effect and by 0.1% for purchases made during the transition period from the day this regulation first comes into effect until its full enforcement at the end of February 2001.

(4) Incentive for Introduction of Vehicles Conforming to the Automobile NOx Law
When vehicles such as trucks and buses in specified areas that do not conform to the standards stipulated in the Automobile NOx Law are replaced with new vehicles that do meet the requirements of those standards and the latest vehicle emission regulations, the automobile acquisition tax rate are reduced by 1.2%.

For the automobile tax, the Local Tax Law authorizes local governments to set up subdivided tax rates depending on vehicle specifications based on the standard tax rates, provided that the variance does not exceed 20% of the standard rates. Utilizing this provision, the Tokyo Metropolitan Government enacted an ordinance on the automobile tax in March 1999, which subjects vehicles used more than 10 years to tax rates higher than the standard rates, while the rates for environmentally friendly vehicles are lower than the standard rates. This variable taxation in Tokyo will be in effect for the period from FY 2001 to FY 2004.