Japan auto lobby cheers subsidies, says tax change not enough

TOKYO Thu Dec 15, 2011 2:50am EST

TOKYO Dec 15 (Reuters) - Japan's auto industry body welcomed the government's plan to extend incentives on the purchase of greener cars on Thursday but repeated its demand to abolish two vehicle-specific taxes that it says is hurting demand.

In addition to the universal 5 percent consumption tax on all goods and services, Japan imposes a vehicle weight tax and acquisition tax that make car ownership disproportionately costly in Japan compared with the rest of the world.

The auto industry has been calling for the abolition of those taxes, stepping up lobbying efforts a few years ago when the government began to use revenues from those levies for purposes other than road maintenance, for which they were created.

The Japan Automobile Manufacturers Association (JAMA) had been hoping to end the debate this year as the industry reels from the yen's strength. Japanese automakers are keen to reduce loss-making car exports but also want to keep a minimum level of production at home to prevent the hollowing out of the manufacturing sector -- an important driver of Japan's economy.

To protect domestic production and jobs, automakers have been seeking Tokyo's help to stimulate dwindling car sales at home, citing the government's own projection that abolishing the two taxes could push annual vehicle sales up by 920,000 units.

Instead, Tokyo this month proposed a partial reduction in the vehicle weight tax, an extension of tax incentives on purchases of fuel-efficient cars for three years under stricter standards, and a fresh scheme to subsidise the purchase of clean vehicles. Details are yet to be decided, and the proposed changes are subject to approval next year in parliament.

"We're grateful to the government for these steps," JAMA Chairman Toshiyuki Shiga told a news conference.

"But there's no basis for the acquisition and vehicle weight taxes anymore, and we will continue to insist that they be abandoned," he said, noting that the group had collected 4.3 million signatures from consumers in a petition demanding their abolition.

JAMA said in September it expects domestic sales this year of 4.25 million vehicles, down 14 percent from 2010 due to supply problems after the March 11 disasters. That was before the Thai floods disrupted output at Toyota Motor Corp, Honda Motor Co and other carmakers.

Japanese vehicle sales grew 7.5 percent in 2010 to 4,956,136 thanks to tax incentives on fuel-efficient vehicles and subsidies to replace older cars. The tax incentives were due to run until next March, while the subsidies expired in early September 2010.

Shiga, who is also chief operating officer of Nissan Motor Co, said the industry group would come up with an updated domestic sales forecast for the fiscal year to March 31 when details of the proposed tax incentives are set.

Japanese vehicle sales peaked at 7.78 million vehicles in 1990.