Is an EV a good buy? The 2026 automobile tax reform and the EV tax hike from 2028

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This is an English translation of our Japanese article. Rules and figures may change; the Japanese version and official sources are authoritative.
Cars and taxes

Is an EV a "good buy" now? The car taxes that changed in 2026, and the EV tax hike starting in 2028

To put the conclusion first, the tax preferences for EVs are at their peak right now. At the end of March 2026 the environmental performance levy at acquisition was abolished, while the 75% reduction of automobile tax for EVs (the green-taxation special provision) and the eco-car tax reduction of the weight tax have been extended to spring 2028. On the other hand, the Outline of the FY2026 (Reiwa 8) Tax Reform set out a policy of tightening taxation on EVs newly registered from FY2028 onward. We explain the latest trends, with calculation examples, so you can "buy only after knowing both today's preferences and the future burden."

Conclusion: for EVs, the peak of preferences is at acquisition and while owning
  • At acquisition: the environmental performance levy is abolished at the end of March 2026. The tax at acquisition becomes consumption tax only (*EVs were already exempt, so the benefit is on the gasoline-car side)
  • While owning: for EVs, the automobile tax for the next fiscal year is reduced by roughly 75% under the green-taxation special provision, plus the eco-car tax reduction of the weight tax (new registration and first inspection are exempt). Both run to spring 2028
  • From 2028: newly registered EVs move to "automobile tax based on vehicle weight," and a special add-on to the weight tax at inspection is also set to begin (the automobile tax on EVs already owned is not affected)

The four "car taxes" that changed in 2026

(1) The environmental performance levy is abolished at the end of March 2026 (at acquisition, consumption tax only)

The "environmental performance levy" that used to be charged at the acquisition of a car (0–3% of the acquisition price depending on fuel efficiency) was abolished as of March 31, 2026 (Reiwa 8) (the Local Tax Act amendment enacted on March 31, 2026). For cars bought from April 2026 onward, the tax at acquisition becomes consumption tax only. Along with this, the names "automobile tax (classification portion)" and "light vehicle tax (classification portion)" also revert to the original "automobile tax" and "light vehicle tax."

EV buyers, note: it was already exempt

For EVs, the environmental performance levy was already exempt (0%). In other words, those who gain from the abolition are mainly people buying gasoline or hybrid cars. For example, a gasoline car with a 2% rate and a tax base of ¥4.5 million would be about ¥90,000 → zero from April 2026 onward.

(2) The provisional tax rates on gasoline and diesel are abolished (a lighter tax burden on fuel costs)

  • The provisional tax rate on gasoline (¥25.1/L) was abolished on December 31, 2025
  • The "for-the-time-being" rate of the diesel oil delivery tax (¥17.1/L) is abolished on April 1, 2026

This is a reform that lowers the running costs of gasoline cars, but conversely it reduces road funding, so it is also a precursor to the "tightening of taxation on EVs" described later.

(3) The green-taxation special provision is extended by two years (EV preferences continue)

The "green-taxation special provision," which reduces the next fiscal year's automobile tax by roughly 75% when you newly register an EV, PHEV, FCV, or similar, has been extended by two years, to March 31, 2028 (Reiwa 10). This is the core of the EV preferences[Japan Automobile Manufacturers Association].

(4) The eco-car tax reduction is extended, but the standards are tightened

The "eco-car tax reduction" of the automobile weight tax has been extended to April 30, 2028 (Reiwa 10). However, the eligible fuel-efficiency standards (the achievement rate against the FY2030 fuel-efficiency standards) will be raised in two stages, in May 2026 and May 2027, and more models of gasoline and hybrid cars will fall out of scope. EVs, FCVs, and PHEVs are unaffected by the raising of the standards and, throughout the period, are exempt at new registration and at the first inspection[Outline of the FY2026 Tax Reform].

How much cheaper are EV taxes "right now"?

When you buy a new EV, the following preferences all apply together on the tax side (example of a private passenger car).

TaxEV (new)Gasoline car (reference)
Environmental performance levy at acquisitionExempt (¥0)¥0 from April 2026 onward (up to 3% before abolition)
Automobile tax (next fiscal year)Roughly 75% off (¥25,000 → ¥6,500)Full amount (by displacement class: from ¥25,000)
Automobile weight taxExempt at new registration and first inspection (¥0)Reduced within the scope of the eco-car tax reduction (full amount if out of scope)
Example: how much do taxes differ between an EV and a 1.5L gasoline car? (private use, newly registered in FY2026)

・Automobile tax (fiscal year after registration): EV ¥6,500 (¥25,000 reduced by 75%) / gasoline car ¥30,500 → difference ¥24,000

・Automobile weight tax (3 years for a new car): EV ¥0 (exempt) / a gasoline car out of scope of the eco-car tax reduction (vehicle weight 1.5t or less) ¥36,900 → difference ¥36,900

・Environmental performance levy at acquisition: ¥0 for both (abolished at the end of March 2026)

From the vehicle-body taxes alone over three years from registration, there are cases where the difference exceeds ¥60,000.

*The automobile tax reduction is only for the one year of the fiscal year after registration; from the second year onward, an EV is ¥25,000. Gasoline cars also have their weight tax reduced if they qualify for the eco-car tax reduction. The actual tax amount varies with the model, weight, and registration timing.

Combined with subsidies, the bottom of the initial cost

Combined with purchase subsidies (the national CEV subsidy and local government subsidies), it can be said that EVs are at the period when initial cost and the initial tax burden are lightest. For amounts, see the Guide to Tokyo EV purchase subsidies.

What the "tightening of EV taxation" starting in 2028 contains

Because EVs do not bear the gasoline tax, there is a structural problem that the more they spread, the more road funding declines. Against this background, the Outline of the FY2026 (Reiwa 8) Tax Reform set out the following two tightenings of taxation[Outline of the FY2026 Tax Reform].

  • (1) EVs (passenger cars) newly registered from FY2028 (Reiwa 10) onward The automobile tax moves to a "taxation method based on vehicle weight" instead of displacement. At present, the lowest tax rate (¥25,000) is uniformly applied to EVs, which have no displacement, but this treatment is to be reviewed. The basic policy is that the average level of the tax rate be "the same level as the average tax rate of cars other than EVs," and the specific tax rates will be decided in the FY2027 (Reiwa 9) Tax Reform (end of 2026).
  • (2) From inspections on or after May 1, 2028 (Reiwa 10) A special add-on to the weight tax based on vehicle weight is introduced for private passenger EVs and PHEVs. The tax amount is set to balance against the gasoline tax that gasoline-car users bear on average, with PHEVs as a guide at one-half of an EV. However, the new-inspection portion of a new car is exempt, and there is a transitional measure whereby cars already sold are also exempt for the first continued inspection after enforcement.
A common misunderstanding: the EV you own now is not immediately taxed more

The weight-based automobile tax in (1) applies from the "new registration portion" of FY2028 onward, and the automobile tax on EVs registered before then is not affected. The special add-on in (2) will apply progressively to EVs you own from future inspections too, but the first one is exempt. In both cases the specific tax amounts have not yet been fixed, so please check the announcements of the Ministry of Internal Affairs and Communications and the Ministry of Land, Infrastructure, Transport and Tourism for the latest information.

Why are EVs the target of tighter taxation?

EVs have a larger vehicle weight because of the onboard battery and place a higher load on roads, yet they do not bear the gasoline tax. The aim is to achieve "fairness of burden" between different power sources, and weight-based taxation may push up the cost of owning an EV in the future. It is important not to assume that today's preferences will continue forever.

Tax points when using an EV for business

When a sole proprietor or corporation introduces an EV for business use, be sure to also grasp the treatment of subsidies and depreciation.

(1) Purchase subsidies are taxable | defer with reduction-entry accounting

A purchase subsidy you receive is included in a corporation's gross revenue and in a sole proprietor's total revenue of business income, and is taxable. National treasury subsidies and the like used to acquire a fixed asset (the EV) can have taxation deferred by reduction-entry accounting (for individuals, the special provision of Article 42 of the Income Tax Act)[National Tax Agency No.5763].

(2) Depreciation

The statutory useful life of a business-use ordinary automobile (including an EV) is 6 years. You expense it according to the proportion of business use (if also used at home, apportion by business share using distance driven, etc.)[National Tax Agency No.2100].

(3) Watch out for the holding obligation of subsidies

EV purchase subsidies have a holding-obligation period (roughly 3–4 years for the national subsidy), and selling or disposing within that period triggers repayment. Check it against your business's replacement cycle.

Summary

Environmental performance levyAbolished at the end of March 2026; the tax at acquisition becomes consumption tax only. However, EVs were already exempt, so the big benefit is on the gasoline-car side
The core of EV preferencesThe green-taxation special provision (automobile tax 75% off: ¥25,000 → ¥6,500) plus the eco-car tax reduction of the weight tax (exempt at new registration and first inspection). Both extended to spring 2028
From 2028EVs newly registered from FY2028 onward move to a weight-based automobile tax, and from inspections on or after May 2028 a special add-on to the weight tax applies to EVs and PHEVs. The tax amounts are decided in the FY2027 Tax Reform
Points for decidingCombined with subsidies, EVs are at the bottom of acquisition and ownership cost now. Decide by also factoring in the future tax hike
Business-use EVsCheck the reduction-entry accounting of subsidies, depreciation (6-year useful life), and the holding obligation

FAQ

Is the automobile tax on an EV cheap?

The automobile tax for the fiscal year after new registration is reduced by roughly 75% under the "green-taxation special provision." The weight tax is also exempt at new registration and the first inspection. These have been extended to spring 2028.

Did EVs gain from the abolition of the environmental performance levy?

Because EVs were already exempt from the environmental performance levy, those who gain from its abolition (end of March 2026) are mainly people buying gasoline or hybrid cars.

Will EVs be taxed more from 2028? Does it apply to the EV I own now?

The policy is that EVs newly registered from FY2028 onward move to a weight-based automobile tax, and that from inspections on or after May 2028 a special add-on to the weight tax begins for EVs and PHEVs. The automobile tax on EVs registered before then is not affected, and the special add-on is also exempt for the first time. The specific tax amounts are expected to be decided in the FY2027 Tax Reform.

Has distance-based taxation already been introduced?

As of July 2026, taxation based on distance driven has not been introduced. It was deferred in the FY2026 Tax Reform and remains at the stage of continued medium- to long-term consideration as part of the shape of vehicle-body taxation and fuel taxation.

Is tax charged on the subsidy for an EV bought for business?

A purchase subsidy you receive is included in a corporation's gross revenue and in a sole proprietor's total revenue of the business, and is taxable. National treasury subsidies and the like used to acquire the EV can have taxation deferred by reduction-entry accounting.