Japan’s opposition Democratic Party for the People has submitted a bill to parliament seeking to abolish the “environmental performance levy”, a tax based on a car’s fuel efficiency, along with several other automobile-related taxes.
The party argues the current structure amounts to double taxation on motorists and suppresses domestic car sales.
Japan’s vehicle tax regime is known to be highly complex, with layered charges applied at purchase and throughout a car’s lifespan. The environmental performance levy, introduced in 2019 after a previous automobile acquisition tax was scrapped, imposes up to 3 per cent of the car’s acquisition price depending on its fuel efficiency. The party believes the 2019 switch amounted to little more than a renaming exercise.
Under the opposition bill, the levy would be abolished entirely. The proposal also calls for scrapping the surcharge applied to the automobile based on weight tax and removing the higher rates imposed on cars more than 13 years old, a measure originally intended to discourage long-term use of inefficient vehicles.
The party’s policy chief Kazuhiro Hamaguchi said buyers currently shoulder both a consumption tax and the environmental levy, calling it “an unnecessary overlap”.
“Reducing the cost at the point of purchase would help support consumer sentiment and contribute to expanding the domestic market,” he said on Tuesday, adding that he hoped the move would also stimulate new car sales, including as a measure to address concerns over US tariffs.
Japan’s auto industry has come under pressure from weak US-bound exports and profit declines at several major manufacturers, with recent media reports showing that US tariff measures have sharply increased costs for Japanese manufacturers and contributed to a slump in car shipments. It sparked concerns that prolonged tariff pressure could weigh on automakers’ investment plans and force deeper reliance on domestic sales.
Separately, the government is considering raising the price threshold at which the environmental levy applies. Vehicles priced at ¥500,000 (US$3,200) or below are currently tax exempt; officials are examining whether to expand that to ¥600,000 (US$3,800) as part of next year’s tax reform. It would be the first revision since the levy was introduced in 2019 and is intended to reflect rising consumer prices.
Prime Minister Sanae Takaichi has also suggested suspending the levy entirely for two years, increasing focus on how year-end tax discussions will balance competing proposals to reduce costs for drivers.
Japan’s vehicle tax framework includes several incentives designed to encourage buyers to choose cleaner, more efficient cars. Under the long-running “eco car” tax reduction scheme, electric vehicles (EV), plug-in hybrids, fuel-cell cars and other low-emission models receive substantial reductions or waivers on the automobile weight tax when they are newly registered.
The government also operates the “Greenification Special Provision”, which cuts annual automobile tax rates – in some cases by as much as 75 per cent in the first year – for vehicles that meet strict emissions and fuel-efficiency criteria.
The environmental performance levy, which the opposition party now wants to abolish, is another part of this system. While standard petrol vehicles can face up to a 3 per cent charge at purchase depending on their fuel efficiency, qualifying clean vehicles, including EVs, hybrids and fuel-cell cars, pay nothing. This upfront exemption has functioned as one of the few nationwide financial incentives that reward consumers for choosing lower emission models in a market still dominated by conventional internal combustion cars.
Critics say removing or relaxing these purchase-time taxes would narrow the cost difference between cleaner vehicles and traditional petrol models, weakening one of the fiscal levers available to steer consumers towards low-emission options. Environmental groups including Kiko Network warn that narrowing the tax difference between cleaner and conventional vehicles undermines one of the few tools available to shift consumer behaviour in line with Japan’s 2050 net zero target.
The government has pledged to reach net zero emissions by 2050 and accelerate decarbonisation through the mid-2030s, and international assessments have repeatedly urged Japan to strengthen, not dilute, policy signals in the transport sector.
The OECD’s 2025 environmental performance review for Japan, for instance, said Japan has made progress but must accelerate emission cuts and move away from fossil fuels to stay on track for net zero by mid-century.
