Japan's ruling parties are set to agree on a tax reform package for fiscal 2019 that will give tax breaks for cars and homes in the hopes of underpinning demand for the big ticket items after next year's increase in the consumption tax, government sources say.
Prime Minister Shinzo Abe's Liberal Democratic Party and coalition partner Komeito are expected to officially announce the reform plan this week before the government submits it to the Diet early next year.
People who purchase new cars after the Oct 1 tax hike will save between 1,000 yen and 4,500 yen each year depending on the model they choose. Owners of small-sized vehicles will get the deepest cuts, although trucks, minivehicles with engines no larger than 660 cc and second-hand cars will be ineligible, the sources said.
The measure will be permanent, with a separate one-off 1 percent tax cut for car purchases in the works to further encourage people to buy after the consumption tax is raised from the current 8 percent to 10 percent.
At the same time, the government will roll back current tax cuts on environment-friendly "eco-cars" as part of efforts to raise funds needed to cover the revenue shortfall of 132 billion yen resulting from the permanent tax cut on car ownership.
Yoichi Miyazawa, who heads the LDP tax panel, said the reforms will be unveiled Dec. 13. They also include an expansion of tax deductions for people with home mortgages.
At present, homeowners can trim up to 500,000 yen per year off of their income and residential tax payments for a duration of 10 years. The new package adds an additional three-year period during which homeowners can deduct 2 percent of the building's price from their taxes.
The package is part of the Abe administration's efforts to prevent a repeat of the wild swing in spending that followed the previous consumption tax hike from 5 percent in 2014, pushing the country into a recession.