The Japanese government is considering reducing the clean diesel tax incentives in its budget for the next fiscal year, starting in April 2021, according to local reports citing sources close to the matter.

The government, backed by the main ruling parties, is also expected to make clean diesel standards more stringent as part of tax reform proposals to be considered for the next budget.

Under the current system, Japan grants vehicle tax reductions and exemptions based on fuel-efficiency. Clean diesel vehicles enjoy high levels of preferential tax treatment similar to electric and hybrid vehicles, fuel cell electric vehicles and natural gas vehicles.

The new proposals will likely affect the commercial vehicle sector in particular, with government policy increasingly focused on encouraging a switch to zero emission vehicles. While clean diesel vehicles are more fuel-efficient than standard diesel vehicles, they still emit carbon dioxide.

The reports also suggest the government is unlikely to raise vehicle taxes overall in the next budget, given the weak outlook for the local market.

The new measures are expected to be included in a package of tax reform proposals to be completed by December.