Photo/Illutration A gas station in Tokyo’s Suginami Ward (Asahi Shimbun file photo)

Gasoline tax cuts have emerged as a major theme in the tax reform debate. While the current fuel and automobile tax system certainly contains defects and drawbacks, simple tax cuts would run counter to decarbonization efforts and lead to a permanent decline in tax revenue.

Instead of pushing a rash, politically motivated tax reduction initiative, the parties should initiate a fundamental and broad-based debate on fuel taxation with an eye toward the introduction of a carbon tax.

The gasoline tax currently consists of a base rate of 28.7 yen (19 cents) per liter plus a special tax rate of 25.1 yen.

In policy talks with the Liberal Democratic Party-led ruling coalition, the opposition Democratic Party for the People has advocated activating the “trigger clause,” a kind of emergency measure to suspend the surcharge during price surges, or abolishing the surcharge altogether.

The ruling coalition and the DPP have agreed to consider these options along with related tax system issues.

The surcharge was introduced 50 years ago as a temporary measure and remains a “measure for the time being” to this day. Admittedly, the rationale for continuing this “provisional measure” is ambiguous and difficult to justify.

However, activating the trigger clause is not conducive to flexible adjustments and can easily lead to unwanted price fluctuations and disruptions in the distribution system.

Similar to the gasoline subsidy that has continued for about three years, the benefits of the provisional measure extend to high-income earners, making it an inefficient way to ease the impact of higher gas prices.

Addressing the problem of price surges should be done through targeted benefits focused on those in need.

Simply abolishing the surcharge would have even greater side effects. Increased gasoline consumption due to a tax cut would go against efforts to combat global warming and pass the environmental cost onto society as a whole.

Even with taxes included, gasoline prices in Japan have been relatively low internationally.

Another policy challenge involved in suspending or abolishing the surcharge is the 1.5-trillion-yen annual shortfall it would create in national and local tax revenue.

Although the funds are no longer a “specific financial resource” for road construction and other particular purposes, the revenue can be used to cover road maintenance costs, which are expected to soar in the future, raising concerns about funding shortages for related projects.

Nevertheless, looking at the entire tax system related to automobiles and fuel, it is clear that many aspects are complex and outdated. It is time to engage in a serious and overarching reform.

The current energy tax system employs different taxation methods for gasoline, light oil, crude oil, natural gas, coal, and electricity.

In Europe and elsewhere, a “carbon tax” levied on the carbon content of fuels, which is proportional to the carbon dioxide emissions the fuels produce when burned, is becoming a more common and efficient means of promoting decarbonization.

Japan should also reorganize its fuel taxation system and accelerate the shift toward a carbon tax-centered model.

In the automobile tax system, adapting to the trend toward electrification is a key issue. The current tax incentives for purchases of electric vehicles are a reasonable way to promote their sales in line with decarbonization goals.

However, electric vehicles are heavier than gasoline cars and tend to cause more damage to roads, a point that needs to be considered when adjusting the tax structure.

Reconstructing the fuel and vehicle tax systems to simultaneously achieve multiple policy goals, including ensuring fair and reasonable burdens, securing tax revenue to meet fiscal needs, and promoting energy conservation, will be a formidable challenge.

We urge all parties to engage in responsible discussions with a long-term perspective, rather than simply seeking short-sighted popularity.

--The Asahi Shimbun, Dec. 1

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