Photo/Illutration Regular gasoline prices hit 187 yen ($1.25) per liter at a gas station in Tokyo’s Shibuya Ward in Aug. 2023. (Asahi Shimbun file photo)

A plan to abolish the provisional gasoline tax rate was agreed on Wednesday by Japan's ruling Liberal Democratic Party (LDP)-Komeito coalition and the Democratic Party for the People (DPP), potentially boosting demand for the fuel.

The agreement, reached alongside another deal on income tax exemption, was needed to secure the DPP's support for passing the provisional budget for the fiscal 2024 year.

Japan's Prime Minister Shigeru Ishiba is leading a fragile minority government after his LDP and coalition partner Komeito lost their parliamentary majority in a lower house election in October, leaving him relying on small opposition parties to pass his policy agenda.

“The parties concerned will continue to engage in good faith discussions regarding specific implementation methods and other matters,” the three parties said in their agreement.

Gasoline in Japan is subject to several taxes, including one totaling 53.8 yen ($0.35) per liter, and a petroleum and coal tax, and a global warming tax, which together add 2.8 yen per liter. Additionally, a 10% consumption tax is applied.

The gasoline tax was originally 28.7 yen per liter, but a provisional tax rate of 25.1 yen was added, bringing the total to its current level of 53.8 yen since 1979, according to the Petroleum Association of Japan (PAJ).

“We can only say that we will closely monitor future policy-making as the detailed scheme is unknown yet,” a PAJ spokesperson said.

While lower taxes may boost demand, price elasticity is considered low as gasoline is a daily necessity. In addition, energy conservation, the shift to electric or hybrid vehicles, and the aging population and declining birthrate make it uncertain how much demand will increase with tax cuts, an industry source said.

Related News