Japan will gradually increase fuel subsidies for households until it scraps the gasoline and diesel taxes at the end of this year and in April next year, with subsidies intended to avoid consumers waiting until 2026 to fill up with cheaper fuel.
Japan’s ruling and opposition parties last week agreed to scrap the gasoline tax surcharge at the end of the year and the diesel tax in April next year, as a way to alleviate the cost of living for households amid surging fuel prices.
Japan’s fuel tax was introduced in the 1970s as a “temporary measure” as the country was boosting road construction.
Instead, the tax has remained in place for 50 years, until the main political parties agreed to scrap the levy.
However, to smooth out the effect of the tax cuts until they come into effect, Japan will raise its gasoline and diesel subsidy for households at several stages beginning next week. The move is intended to incentivize consumers to buy fuels by the end of the year and not wait until January 1, 2026 to fill up.
These subsidies will end when the gasoline and diesel taxes are abolished.
The issue for the government going forward is how to make up for the lost revenues from the gasoline and diesel taxes. Japan’s budget is set to lose about $9.8 billion (1.5 trillion Japanese yen) from the abolition of the levies.
The ruling and opposition parties will consider various measures to make up for the shortfall in revenues, including lowering expenditures, scaling back some special tax cuts for corporations, or raising the income tax on high-income earners.
The parties are expected to decide which measures will offset lost tax revenues by the end of the year, according to a multi-party agreement of the six main parties in the country.
By MIchael Kern for Oilprice.com
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