Japan proposes tax credits for EV, SAF investment

Market: Battery materials, Biofuels, Metals, Oil products, Petrochemicals
14/12/23

Japan's ruling Liberal Democratic Party (LDP) has submitted a proposal to reform the country's taxation system, offering tax credits for strategically important products such as electric vehicles (EVs) and sustainable aviation fuel (SAF), to promote domestic investment.

The proposal is expected to take effect from April 2024, after the government's authorisation. The LDP released its proposal on 14 December, requesting that the government consider further tax cuts for five "strategic commodities" including EVs, SAF, and semiconductors to promote domestic investments. This will also apply to steel and chemical products that are produced using decarbonisation methods, without disclosing more details.

The proposal aims to accelerate larger investments and production at scale, according to the LDP, as the tax credits would be proportional to the output and sales of the products. Tax credits are currently set at ¥400,000/unit ($2,822/unit) for EV, ¥20,000/t for steel products, ¥30/litre for SAF, ¥50,000/t for basic chemical products, according to the proposal. For semiconductors, it ranges from ¥4,000 to ¥29,000, depending on the types and grades.

Further proportional ratios for tax reductions are unknown, but LDP set the upper limit for total tax credits at 40pc of the four commodities' corporate tax, excluding semiconductors which is set at 20pc.

The LDP holds the majority of seats in the parliament and with the signing of the prime minister, the government is expected to give the green light for the proposal without major amendments.

It is important to promote intensive domestic investments for sectors that strengthen supply capacity of strategic commodities, according to the LDP. The proposed duration of the scheme is 10 years, which the LDP describes as "extremely long", and aims to "increase predictability of the mid-to-long term investment".

The proposal came after criticism of the existing Carbon Neutral Investment Promotion Tax Credit Scheme (CNTS) that temporarily offers tax credits on investments that contribute to decarbonisation.

The country's major industry groups in November expressed dissatisfaction for the CNTS because of its short duration, narrow scope and low upper limits for investment, concluding it is not adequate and practical to support private-sector investment for the country's decarbonisation efforts.

By Yusuke Maekawa

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Japan proposes tax credits for EV, SAF investment

Related news posts

Australia offers support to Rio Tinto’s Tomago Al plant

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