Japan’s 10-year tax cut on electric vehicles and semiconductor chips is a significant move to promote the development of these industries domestically. The policy is expected to bring numerous benefits to the Japanese economy, including enhancing competitiveness, creating job opportunities, and protecting the environment.
The truth behind tax incentives policy for electric vehicle and semiconductor chips in Japan
The new tax incentive program implemented by the Japanese government aims to attract investment in green transition projects. This policy focuses on the Japanese government’s strategic sectors, including Electric Vehicles (EVs) and hydrogen fuel cells, Semiconductor materials, Sustainable aviation fuels, etc.
The policies intend to support businesses investing in Japan by providing tax incentives for projects of strategic significance, such as transitioning to green industries, making it easier for them to achieve profits. According to a source of information, Japan’s Liberal Democratic Party and its coalition partner Komeito are expected to introduce tax reductions as part of the 2024 tax reform.
This incentive policy includes a tax reduction of up to 400,000 yen for each electric battery-powered or hydrogen fuel cell vehicle and similar benefits for plug-in hybrid vehicles. Additionally, businesses investing in sectors such as semiconductor production and sustainable aviation fuel will also benefit from the tax incentives for 10 years.
These measures reflect Japan’s strong commitment to technological innovation and the development of the electric vehicle industry, as the automotive sector still accounts for a significant portion of the country’s GDP. However, Japan has been lagging in implementing emission-free measures for cars compared to some other Asian countries.
A journey to the future or the blind leap forward?
Amidst the tax incentives for electric vehicles and semiconductor chips in Japan, a series of risks and challenges need to be carefully considered. One of the most significant risks is the potential abuse of incentives, where businesses may employ tactics to benefit from these policies inappropriately. However, the Japanese government has implemented certain measures to address these challenges, including restricting the number of businesses eligible for incentives.
To enhance the effectiveness of management measures, the application of information technology for record-keeping and payments is also proposed, along with strengthening coordination among relevant agencies and increasing transparency in policy implementation. This will help minimize the risks of abuse and budget loss, while creating favorable conditions for the sustainable development of the electric vehicle and semiconductor industries in Japan.
Japan’s ambition towards the National Electric Vehicle Goal.
Japan is struggling to keep up with the EV’s global trend. Policies on green energy usage confront challenges such as limited lithium resources, unstable energy sources, rapid industrial growth, and CO2 emission reduction. In this context, the Japanese government is realizing the need for action and is implementing measures such as tax reductions, incentives, and discussions on distance-based taxes. Currently, Japan must choose between suspending hydroelectric plans or proceeding with a market-oriented approach.
Japan has set a goal to transition all vehicles produced by Japanese automakers in the global market to electric vehicles by 2050. This goal aims to achieve world-leading environmental performance and support the “Emissions-free from wheel to wheel” approach, effectively eliminating emissions from fuel production and operation processes.
The Ministry of Economy, Trade and Industry (METI) introduced a new policy target in 2021, aiming to achieve 100% sales of xEV vehicles by 2035. This includes hybrid vehicles, where sales have already accounted for nearly 30% of total sales in Japan. The Japanese government has also announced plans to increase the proportion of electric and plug-in hybrid vehicles in passenger car sales to 20-30% and the proportion of fuel cell vehicles to 3% by 2030.
Meanwhile, the Tokyo government is striving to expand the public charging points network, from 30,000 to 150,000 by 2030. Japan is currently investing in research and development of electric vehicles, focusing on batteries and charging technology to improve efficiency. Government support covers $2.2 billion for battery production and $1 billion in subsidies for manufacturers such as Toyota to enhance supply chain security.
To encourage the transition from gasoline vehicles to electric/hybrid vehicles, reducing the lithium-ion batteries cost is the key. Specifically, Japan is considering implementing tax incentives for companies investing in battery production facilities to reduce emissions. The Japanese government has allocated a total of 12.5 billion yen (85 million USD) for electric mobility in the supplementary budget for 2021. They have earmarked 6.5 billion yen (59.5 million USD) to establish new charging stations and 6 billion yen (54.9 million USD) to develop new hydrogen refueling stations.
In 2021, Nikkei reported a subsidy of 25 billion yen (USD 193 million) for electric and fuel cell vehicles. The subsidy for electric vehicles amounted to 800,000 yen (USD 5,460) per vehicle, contingent upon access to renewable charging sources, which poses a challenge for urban dwellers. Eco-car tax incentives provide deductions or exemptions for vehicle weight tax, automobile acquisition tax, and automobile tax for electric vehicles. Eligible vehicles also include those with efficient internal combustion engines.
The Japanese government aims to promote the use of electric and hybrid vehicles through amendments to vehicle weight tax regulations. Starting from January 2024, vehicles that achieve 80% of Japan’s energy-saving target will receive a 50% tax reduction, while those achieving 70% will receive a 25% tax reduction. These rules will change in May 2025, requiring vehicles to meet 80% and 90% of the energy-saving target to receive tax reductions of 25% and 50%, respectively.
The tax incentive policy for electric vehicle and semiconductor chip production in Japan is a strategic move with a long-term vision, aiming at sustainable development goals and enhancing the country’s position in the international market. This policy promises to bring many benefits to Japan’s economy, environment, and society in the future.