The kei car, a Japanese vehicular oddity, and a big part of its car culture, could be reaching its apogee. If a Japanese government advisory panel gets its will, the mini vehicle will lose most, if not all of its unique tax advantage.
Lower taxes, along with a lower insurance premium, powered the otherwise underpowered small cars to a market share of nearly 40 percent. That advantage is likely to dissipate as part of an overhaul of the Japanese tax system. On April 1, 2014, Japan’s consumption tax will rise from currently 5 percent to 8 percent, which has the Japanese car industry worried about a crash in car sales. “To help cushion the auto industry from the impact of the consumption tax hike,” as The Nikkei [reg] puts it, the current automobile acquisition tax is likely to be phased out. To pay for the shortfall, drivers of kei cars are planned to pay higher taxes. It looks like Japan’s automobile tax will be tied to CO2 output, which basically is a tax on fuel consumption. Those kawai 0.66 liter enginelets are not as frugal as they look, many compact cars get a better mileage.
“There is also external pressure to increase taxes on minicars,” reports The Nikkei. The EU is in negotiations with Japan over a free trade pact. Japan has a zero percent tariff on imported cars, while the EU charges 10 percent. Looking for what Japan could give if the EU scraps its tariff, all eyes are on the kei cars. A removal of the tax advantage, and possibly a change in the technical regs of kei cars could be used as a bargaining chip.
Not surprisingly, these plans don’t sit well with Osamu Suzuki. With 88 percent of Suzuki’s Japanese sales being kei cars, the company has the most to lose. Sales of kei cars skyrocketed 25.4 percent in September, with buyers locking in tax advantages while they still last.