Ruling and opposition parties in Japan have agreed to abolish the provisional gasoline tax by the end of the year. In this article, I would like to discuss problems related to its abolition.
The gasoline tax rate is 28.7 yen per liter, but since 1974 an additional 25.1 yen per liter has been imposed under an extraordinary measure to raise funds for road development. This is the provisional gasoline tax rate. Although it was converted from a road-specific fund to a general-purpose fund in 2009, the gasoline tax, including the provisional tax, has been maintained.
On the other hand, gasoline and diesel fuel subsidies are currently provided to mitigate the financial burden of rising fuel prices on households and businesses. Since their introduction in 2022, these subsidies have been repeatedly extended, totaling more than 8 trillion yen.
The current proposal to abolish the provisional tax has emerged as an alternative to providing the subsidies. However, the abolition of the provisional tax will lead to an annual revenue loss of 1 trillion yen, and if the provisional diesel fuel tax, which was excluded from the current agreement, is also abolished, the combined annual loss to national and local tax revenue will be 1.5 trillion yen.
It is well known that Japan’s outstanding government debt exceeds 1,000 trillion yen. Although tax revenues have hit a record high, defense and social security spending have also increased, preventing the government from eliminating the fiscal deficit. With interest rates on government debt rising, Japan’s future fiscal situation is precarious.
In this situation, the agreement to abolish the provisional tax was based on the premise of securing alternative financial resources, but the future of the proposal and its effects are uncertain. Since the House of Councillors election, political pressure for consumption and other tax cuts has been increasing. There is concern that the fiscal burden from abolishing the provisional tax could become permanent.
The changing situation surrounding roads also cannot be ignored. In the past, frivolous road construction was a major problem, but today aging infrastructure is a major problem, including the aging of roads. As of march 2023, about 40% of roads and bridges were constructed more than 50 years ago, and the figure is expected to reach about 75% by 2040, according to data at the Ministry of Land, Infrastructure, Transport, and Tourism.
Japan’s aging society and declining population are also progressing. Especially in rural areas, automobiles are considered indispensable for everyday life. However, it is increasingly difficult for elderly people to continue driving into their final years. In the future, it will be necessary to secure and enhance public transportation, so perhaps the government’s fiscal burden of 1 trillion yen should be used for these new challenges rather than reducing the gasoline tax.
There is also criticism that gasoline represents a case of double taxation because gasoline is also subject to consumption tax. However, among the 35 OECD (Organization for Economic Cooperation and Development) member countries, Japan ranks 32nd in terms of tax burden per liter (combining the consumption and gasoline taxes), and 29th as a proportion of tax in the retail gasoline price.
Other countries impose higher taxes on gasoline due to environmental concerns.
Japan has also set a goal of achieving net-zero greenhouse gas emissions by 2050. Automobiles account for 16.5% of carbon dioxide emissions (as of FY2023). The gasoline tax cut will provide the greatest benefit to gasoline consumers with poorer fuel efficiency and longer mileage, which is counter to the goal of decarbonization. Regarding automobile-related taxes, the ruling coalition’s tax policy outline has called for a shift from vehicle ownership-based taxes to usage-based taxes such as the gasoline tax.
Based on the above, the abolition of the provisional gasoline tax is fraught with problems. The agreement between the ruling and opposition parties is essentially devoid of a comprehensive and long-term perspective regarding Japan’s fiscal and economic conditions, transportation demands, and climate change.
>> Original text in Japanese
* Translated by RIETI.
September 13 / 20, 2025 Weekly Toyo Keizai
