Japan to offer 10 years tax break to boost EV, chip production

  • Decade-long Incentives: Japan plans 10-year tax breaks to stimulate investment in strategic sectors, including electric vehicles (EVs) and high-tech chips.
  • Green Transformation Focus: The scheme targets green transformation, offering tax benefits for projects crucial to achieving environmental sustainability and profitability.
  • Vehicle Incentives: Tax breaks include ¥400,000 ($2,755) for each battery EV and hydrogen fuel-cell car, with half that amount for plug-in hybrid vehicles.
  • Semiconductor Production Support: Incentives extend to semiconductor production, providing up to a 20% annual break on corporate income tax for silicon carbide chips.
  • Diverse Green Sectors: The plan covers a range of green sectors, including sustainable aviation fuels, green steel, and green chemicals, emphasizing a holistic approach to environmental sustainability.
  • Fiscal 2024 Tax Reform Framework: The tax breaks will be incorporated into the fiscal 2024 tax reform framework, with finalization expected as the ruling coalition agrees on the proposal in December.
Japan's Strategic Tax Incentives for Green Transformation
Image: Tokyo Century NEWS

Japan’s Strategic Tax Incentives for Green Transformation

In a bid to attract major investments, the Japanese government has outlined a plan to provide tax incentives for a duration of ten years in key sectors, including electric vehicles (EVs) and high-tech chips. The initiative aims to facilitate increased production and investment in areas deemed strategically important for Japan’s economic growth, particularly focusing on the green transformation.

As part of the plan, tax benefits will be extended to projects with high hurdles for achieving profitability, making it more enticing for companies to invest in Japan. The ruling Liberal Democratic Party and the coalition Komeito party are set to incorporate these tax breaks into the fiscal 2024 tax reform framework, which is expected to be finalized on Thursday, according to a source familiar with the matter.

The proposed tax breaks include significant incentives for electric vehicles, with 400,000 yen ($2,755) earmarked for each battery EV and hydrogen fuel-cell car. Plug-in hybrid vehicles will also enjoy incentives, albeit at half the amount of their electric counterparts.

The plan extends its scope to various sectors, encompassing semiconductor production, sustainable aviation fuels, green steel, and green chemicals. In the semiconductor category, businesses stand to gain up to a 20% reduction in corporate income tax each fiscal year, while other sectors could benefit from tax breaks capped at 40%.

This comprehensive strategy is aligned with the Japanese government’s tradition of revising its tax code every spring. The political consensus within the ruling coalition, usually reached in December, sets the overall direction for the proposed tax reforms. The move reflects Japan’s commitment to fostering innovation and sustainable development in crucial industries, encouraging both domestic and foreign companies to contribute to the country’s economic advancement.

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Source(s): Asia Time

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