Due to the increasing popularity of EVs in Japan, the government is planning for new forms of taxes, according to recent press reports. Unlike ICE cars’ tax amounts determined by the sizes of combustion chamber, EVs don’t have to burn fuel and produce carbon dioxide, so fuel tax doesn’t apply to EVs. With the global effort toward carbon reduction, the Japanese government therefore exempts EV owners from paying fuel tax, which was the main source for road maintenance expense. However, as EVs rise in number, according to the Japan Automobile Importers Association’s (JAIA) statistics published on 6th December, Japan’s import EV sales in November surged by 1.6 times to 2,357 units YOY, scoring a record monthly sales number and an imported sales ratio of 10.4%, surpassing the 10% threshold for the first time. During Jan-Nov 2022, Japan’s import EV sales grew 68.3% to 12,090 units, scoring a new record high YOY. Hence, the Japanese government plans to impose mileage tax on EVs to replace fuel taxe and mitigate the budget shortage for road maintenance. Of all Japan’s automobile taxes, there’s a car acquisition tax charged on purchases, annual vehicle inspection tax, and fuel tax. As the most important one, Japan’s fuel tax levy had reduced from 2007’s ¥4.2 trillion to 2022’s ¥3.2 trillion. The 2018 annual road maintenance expense costs ¥7.8 trillion, overspending 6.2 trillion out of automobile-related tax revenue. Aside from better fuel consumption efficiency due to better auto technologies, the deficit stemmed from EVs’ increasing sales penetration rate.
At the end of 2021, Taiwan’s Legislative Yuan extended license tax and fuel tax exemption and reduced commodity tax till 2025, and the reduced amount is growing annually with the increasing number of EVs. According to the Ministry of Transportation and Communications, there are about 18,000 electric cars and 523,000 electric scooters on road in Taiwan as of October 2021. In recent years, Taiwan’s EV commodity reduction amount grew from 439 million NTD in 2017 to 2.101 billion in 2020 and 2.06 billion within the first ten months of 2021. As for license tax, the reduction amount for electric cars increased from 25 million in 2017 to 360 million in 2020 and 480 million within the first ten months of 2021. The Ministry of Finance passed an amendment on 14th December 2011 to impose EV license tax by the horsepower of vehicle. EV’s license tax brackets and rates are similar to their ICE car counterparts, with ten tax brackets (one fewer than ICE cars) and ranging from 1,620 to 117,000 NTD (34,200 less than ICE cars for the highest rate). However, this standard was established back in 2011, so it should be revised while EV taxation started in the future.
Below are Taiwan’s automobile tax regulations and EV incentives for the time being:
- Locally produced or import: 17.5% import tariff for regular vehicles, and 25% or 30% commodity tax on passenger cars. If an EV’s duty-paid price is lower than 1.4 million NTD, then it is exempted from commodity tax; for the amount higher than 1.4 mil NTD, it will enjoy only 50% tax reduction.
- Purchase: 5% VAT imposed for both regular and electric cars.
- Ownership and driving: license tax and fuel tax are levied on an annual basis according to engine sizes, with the former ranging from 4,320 to 11,230 NTD and the latter ranging from 4,320 to 151,200 NTD. As for EVs, the two taxes are both exempted until 2025.
- Vehicle inspection: a 450 NTD mandatory annual car inspection from the sixth year since purchase and biannually since the eleventh year
As for Japan, its government eliminated the import tariff on automobiles in 1978 and car commodity taxes (23% for regular passenger cars) on 1st April 1989. Below are other Japanese auto taxes:
- Vehicle tax: charged annually from ¥29,500 to 111.000 according to the engine size
- Car weight tax: charged with each biannual mandatory car inspection with a car-weight-based amount and an increasing annual rate of ¥6,300/0.5t for passenger cars
- Carbon tax: a 0~3% tax rate according to the vehicle’s fuel efficiency, exempting EVs
- Vehicle inspection fee: a biannual full vehicle inspection from the fourth year since purchase, costing around ¥50~70k
- Car acquisition tax: a 10% tax rate covering car purchases and gas prices
- Fuel tax and regional road tax: ¥48.6/L and ¥5.2/L, respectively
According to the information above, we can identify many more favorable incentives for EV driving than ICE cars to encourage EV sales in Taiwan and Japan. Additionally, Taiwan passed a law regulating parking lots to install charging posts to meet EV owners’ demands. These measures are greatly beneficial to EV sales promotion and will spur an exponential growth of EV unit numbers.
As for Taiwan’s future EV license tax and fuel fee charging methods, should we use a fixed charge model graded by horsepower from 2011 or adopt a user charge like Japan’s mileage taxation? Of course, this involves a tug-of-war between collection methods and interest groups’ lobbying. Many countries (such as Japan) use user charges to collect Fuel tax (fuel fee for private vehicles) with every refueling, yet how EVs achieve user charge policies during charging or driving remains a multifaceted issue. My previous article, "Talking about Norway’s EV policies," mentioned that Norwegian charging equipment manufacturer Zaptec designed a central control system that adjusts individual charging powers to keep the electrical load under the threshold. Additionally, the system can document charging stats to charge users accordingly. If the household electricity consumption technology could gain promotion and application and a charging standard for public charging posts in parking spaces, I believe a road user charge that creates a win-win situation for the government and consumers would be around the corner.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.