Reducing Gasoline Tax: Take Responsibility for Decarbonization, Alternative Revenue Sources

Editorial

16:57 JST, August 25, 2025

Discussions are getting into full swing between the ruling and opposition parties on abolishing the provisional gasoline tax rate. It is necessary to secure alternative revenue sources to offset an about ¥1 trillion drop in tax revenue and make progress in establishing a new system that does not run counter to decarbonization efforts.

Six ruling and opposition parties, including the Liberal Democratic Party, Komeito and the Constitutional Democratic Party of Japan, agreed at the end of last month to abolish the provisional gasoline tax rate by the end of the year. Currently, concrete measures are being discussed in working-level talks.

The provisional gasoline tax rate was first applied in 1974. In order to address a shortage of financial resources for road construction and development, the two-year temporary measure increased tax revenue, but its application period has been extended repeatedly ever since.

Following the abolition of the system for earmarking road-related taxes for construction and maintenance, the revenue from the provisional gasoline tax rate was incorporated into the general account in 2009. However, the framework of how it works has remained largely unchanged. Currently, the basic tax of ¥28.7 per liter is supplemented by the provisional tax of ¥25.1.

In tackling new concerns such as global warming, it is probably time to change the framework of the additional tax rate that has been in place for half a century despite being called “provisional.”

However, there would be many issues to address related to the tax rate’s abolishment. The focus is on how alternative financial resources will be secured to offset the estimated ¥1 trillion loss in annual tax revenue.

The LDP and Komeito argue that a permanent source of funds is necessary. In contrast, the CDPJ has proposed utilizing the portion of overall tax revenue exceeding projections, among other funds. The Democratic Party for the People believes that there is no need for a substitute revenue source if the surplus in the primary balance is used. There is a wide gap between the ruling and opposition parties.

The national debt has exceeded ¥1.3 quadrillion, placing Japan in the worst financial condition among major developed countries. Given this reality, a permanent revenue source is essential.

The revenue gained from the gasoline tax continues to be used mainly for road construction and maintenance, even since it was incorporated into the general account. Without a substitute revenue source, surely concern will grow that expenses allocated to road construction and maintenance may be reduced.

Furthermore, if tax cuts increase gasoline consumption, the expansion of the use of eco-friendly vehicles will be hindered, resulting in a move counter to the trend toward decarbonization. It could also lead to a decline in international competitiveness.

When discussing abolishing the provisional gasoline tax rate, the government should review the overall tax system related to automobiles, along with measures to achieve decarbonization, such as the spread of electric vehicles.

Another point of contention is how to handle the provisional tax rate on diesel. This is because abolishing this tax rate would impact local tax revenue to the tune of about ¥500 billion.

In response to rising energy prices, mainly due to the weak yen, the government introduced a subsidy program to reduce gasoline prices in 2022 as a measure to mitigate the drastic price changes. This program is still in effect. Measures to prevent market disruption will also be necessary in the process of abolishing the provisional gasoline tax rate.

(From The Yomiuri Shimbun, Aug. 25, 2025)