Just as Japan’s government prepares the ground for a decision on whether to go ahead with a second increase in the national sales tax, a report by one of its ministries said another jump in the tax rate would further hit struggling domestic automobile sales.
The report said that if the government raises the sales tax to 10% from the current 8% in October 2015 as planned, domestic sales of new cars will likely drop to 4.55 million vehicles in the fiscal year ending March 2017 compared with 5.69 million in the 12 months to March this year.
Sales in the current fiscal year ending next March are already forecast to dip below 5 million in the wake of the first sales tax increase in April.
The report was prepared by Japan’s Ministry of the Economy, Trade and Industry for a parliamentary committee on automobile taxation. A copy of the report was obtained by The Wall Street Journal.
The car industry has long called for revisions to vehicle-related taxes to help boost domestic auto sales.
For the April to September first half of the current fiscal year, Toyota Motor , Nissan Motor , Mazda Motor and Mitsubishi Motors all said their domestic car sales declined from a year earlier. The METI report said that car sales are expected to decline to 4.95 million in the current fiscal year.
Even Honda Motor , whose domestic car sales rose 15% in the fiscal first half on the back of popular new models, has been forced to cut its profit forecast for this business year by about 6% because of a weaker-than-hoped home market, as well as sluggishness in China.
“The impact of the sales tax hike is lingering longer than initially expected,” said Tetsuo Iwamura, a Honda executive vice president, at a news conference on Tuesday.
In the report, the Japan Automobile Manufacturers Association said sales this year would fall by at least 400,000 vehicles as a direct result of the higher tax rate. It also said sales this year are likely to fall by an additional 400,000 vehicles or more due to the demand falloff following the rush-buying seen before this year’s tax increase.
Prime Minister Shinzo Abe is set to make a decision on whether to proceed with the planned sales tax increase in early December, after taking into account the state of the economy.
– WSJ
