Bloomberg News

Japan Extends Tax Break to Aid Automakers as Recovery Falters

December 12, 2011

Dec. 10 (Bloomberg) -- Japan extended the duration of tax breaks for fuel-efficient vehicles to support automakers as gains by the yen and weakness in global demand hurt the nation’s economic recovery.

The program will expire April 2015 instead of next April, according to an outline of tax policies approved by cabinet members in Tokyo today. Japan will also resume for one year rebates for eco-friendly vehicles, which expired in September, according to the documents.

The government and the ruling Democratic Party of Japan debated the tax cuts and rebates for the auto industry until just a few hours before the completion of the outline. Finance Minister Jun Azumi has said that before cutting taxes the nation needs to support the “key industry” of automobiles while finding ways to curtail losses of revenue. Japan shoulders the world’s largest public debt.

Failure to provide enough support to the auto industry “will be a critical issue for the economy as a whole in the future,” Christopher Richter, an analyst at CLSA Asia-Pacific Markets in Tokyo, said before the release.

Prime Minister Yoshihiko Noda rejected requests for more reductions of levies on vehicles, the documents showed. The government decided to lower car weight taxes by 150 billion yen ($1.9 billion) after the Trade Ministry requested about 1 trillion yen of levy cuts.

“Our request isn’t only to reduce the tax burden, but it’s to combat the strong yen, prevent a hollowing out and maintain domestic production,” Toshiyuki Shiga, head of the Japan Automobile Manufacturers Association, said on Nov. 15.

‘Complete Backup’

“The importance of the car industry is undeniable,” Azumi told reporters after the cabinet members approved the outline. “We want to provide a complete backup for them.”

Toyota Motor Corp. has cut its profit forecast for the year ending March 31 by 54 percent after flooding in Thailand disrupted production and as the yen’s strength pushed up prices in export markets. A slowdown in Japan’s economic growth is “unavoidable” for now, Bank of Japan Deputy Governor Kiyohiko Nishimura said yesterday.

For other measures, Japan will impose a ceiling on tax deductions for taxpayers who earn more than 15 million yen ($190,000). Those who hold more than 50 million yen of assets abroad will be required to report once a year.

Japan will introduce a carbon tax to curb greenhouse gas emissions as the nation increases the use of fossil fuels to generate power in reaction to a reduction in electricity generation by the nuclear industry. The government won’t raise tobacco taxes next fiscal year after an increase in 2010.

Shore Up Demand

Noda ordered a fourth extra budget last week to shore up demand in the world’s third-largest economy. The government will earmark 300 billion yen for rebates of eco-friendly cars in the supplementary budget to be compiled this month, today’s documents showed.

Gross domestic product increased at an annualized 5.6 percent in the three months ended Sept. 30, the Cabinet Office said in Tokyo, compared with a preliminary figure of 6 percent as companies reduced investment on concern overseas demand was stalling. The median forecast of 19 economists surveyed by Bloomberg News was for an increase of 5.2 percent.

--With assistance from Eleanor Warnock in Tokyo. Editors: James Tyson, Christopher Wellisz

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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