“Approximately 40% of gasoline prices remain high” – Taxes? What are the gasoline-related issues, such as provisional tax rates, double taxation, and trigger clauses?

Why gasoline tax is 25.1 yen higher than it should be

First, what kind of gasoline taxes are there? There is the “gasoline tax” (national tax) and the “local gasoline tax” (local tax). Currently, the tax rates and their totals are as follows:

“Gasoline tax 48.6 yen/L” + “Local gasoline tax 5.2 yen/L” = “Total 53.8 yen/L”

However, in fact, this is different from the actual tax rate, and includes a special tax rate, the so-called “provisional tax rate” mentioned above.

This provisional tax rate is a “temporary tax” that was originally established in 1974 due to a lack of road funding. It was abolished in 2010, but a special tax rate of the same amount was soon established and remains in place to this day.

The original gasoline tax is as follows:

“Gasoline tax 24.3 yen/L” + “Local gasoline tax 4.4 yen/L” = “Total 28.7 yen/L”

In other words, the current gasoline tax is 25.1 yen/L higher than the original rate due to the provisional tax rate. What’s more, this “temporary tax” has been in place for over 50 years.

Another problem is that the original purpose of the tax was to fund road construction, but it has now been appropriated as general revenue. This is one of the issues that those calling for a “review of taxes” see as problematic, as it has now been converted into general revenue, which can be used for various administrative services, even though the original purpose was to build roads.

Incidentally, there are also other taxes imposed on gasoline, including the petroleum and coal tax and the global warming countermeasure tax (added on to the petroleum and coal tax), totaling 2.8 yen/L. Therefore, gasoline is currently subject to a total of 56.6 yen/L in taxes .

Is consumption tax double taxed?

In addition to these taxes, gasoline prices are also subject to consumption tax. Moreover, in the case of gasoline, consumption tax is levied at 10% on the total price of the gasoline, petroleum and coal tax (including the global warming countermeasure tax; hereafter referred to as the petroleum and coal tax). This taxation system has been criticized as “double taxation, imposing consumption tax on gasoline tax.” Furthermore, the imposition of these taxes is the basis for the aforementioned assertion that “nearly 40% of the price is tax.”

For example, if the retail price of regular gasoline is 185 yen/L, the estimated amount of tax is as follows:

Regular gasoline retail price: 185 yen/L

Base price: 112.4 yen/L

Gasoline tax (original tax amount): 28.7 yen/L

Gasoline tax (provisional tax): 25.1 yen/L

Petroleum and coal tax: 2.8 yen/L

Consumption tax: 16 yen/L

The above is just an example, so the consumption tax amount may vary slightly depending on the decimal point (rounding down or rounding up), but in this calculation, the tax is 72.6 yen/L . In other words, 39% per liter, or about 40%, is tax.

By the way, gasoline tax and petroleum and coal tax remain constant even if the price of gasoline itself changes, so if the price of gasoline itself becomes cheaper, the tax rate will increase even more.

For example, if the retail price of regular gasoline is 165 yen/L, the base price is 93.4 yen/L, and the tax is 56.6 yen/L (gas tax + petroleum and coal tax) plus 15 yen/L (consumption tax), for a total of 71.6 yen/L. When purchasing 1 liter of gasoline, tax accounts for more than 43%.

Some say the freeze on trigger clauses should be lifted

Regarding the issue of gasoline tax, there are also voices calling for the “freezing of trigger clauses” to be lifted.

The trigger clause is a system introduced in the 2010 tax reform, which states that if the national average price of regular gasoline exceeds 160 yen/L for three consecutive months , the provisional tax rate of 25.1 yen/L mentioned above will not be levied .

The law was enacted with the aim of stabilizing gasoline prices, which have a major impact on people’s lives, by pulling the trigger of a gun or similar device, in other words, by “lowering the tax,” when the price of gasoline exceeds a certain level.

According to data from the Agency for Natural Resources and Energy, the national average price of regular gasoline reached 160 yen/L on October 4, 2021, and has remained above 160 yen/L ever since. Therefore, this system would normally be in effect, and the total of the gasoline tax and petroleum and coal tax mentioned above would be 31.5 yen/L. If the base price were 112.4 yen/L as estimated above, the gasoline price would be as follows:

“Base price 112.4 yen/L” + “Gasoline tax + petroleum and coal tax 31.5 yen/L” + “Consumption tax 14 yen/L” = “Total 157.9 yen/L”

In other words, assuming the base price is 112.4 yen/L, the retail price would be 27.1 yen/L cheaper than the 185 yen/L estimated under the current system if the provisional tax rate were not included.

However, the trigger clause is currently frozen. The reason is to secure funds for reconstruction following the Great East Japan Earthquake that occurred in 2011. Therefore, even if the national average price of regular gasoline rises above 160 yen/L, or to the current 180 yen/L range (184.5 yen/L as of April 28, 2025), the tax amount will remain unchanged.

As mentioned above, the Liberal Democratic Party, Komeito, and the Democratic Party for the People have agreed to abolish the provisional tax rate. However, the timing of implementation has not yet been decided, and it is unclear when this will occur. This is because it has not yet been decided where alternative financial resources will be secured if the provisional tax rate is abolished, so it will be interesting to see what happens next.

Subsidies also reduced, with the timing of the abolition of the provisional tax rate unclear

The current rise in gasoline prices is said to be largely due to the global rise in crude oil prices caused by the Russian invasion of Ukraine and the weak yen. It is unclear whether prices will ever return to their previous levels. Despite this, the trigger clause remains frozen, and it is unclear when the temporary tax rate will be abolished.

In the past, the government responded to rising prices by providing oil refiners with “gasoline subsidies (fuel oil price volatility mitigation subsidies)” to help them lower their sales prices . However, the amount of these subsidies will be reduced as of 2025.

This subsidy system, which came into effect in January 2022, was originally established as a “temporary, emergency relief project to mitigate sudden changes” to prevent it from becoming a burden on the economic recovery from the COVID-19 pandemic. Now that the COVID-19 pandemic has somewhat subsided, the government is gradually reviewing the system, and from April 17, 2025, the subsidy amount will finally be zero for the first time since the system was launched.

The reason for the 0 yen subsidy seems to be that the predicted price is below the base price of 185 yen/L for subsidies. Previously, regular gasoline would have exceeded 200 yen/L without subsidies, but due to factors such as crude oil prices, regular gasoline has now reached the 185 yen/L range even without subsidies.

Subsequently, the amount of gasoline subsidies was increased to 1.1 yen from May 1st to May 14th, but according to the Agency for Natural Resources and Energy, the national average price of regular gasoline was still 184.5 yen/L as of April 28th, 2025, the latest figure. Although this is slightly lower than the previous week’s figure of 185.1 yen/L as of April 21st, 2025, it still remains at a high level of around 180 yen/L. From the user’s perspective, this does not change the fact that gasoline prices in the market remain high.

The aforementioned gradual 10 yen per liter price reduction, which will begin on May 22, 2025, is likely to be supported by subsidies. However, the concern is that price reductions through subsidies are only temporary. If the subsidy amount is reduced or eliminated, as in this case, there is a risk that prices will quickly rise. On the other hand, gasoline tax is subject to legal amendments and other factors, so it is certainly difficult to see tax cuts being implemented immediately. In any case, since gasoline prices are deeply related to people’s lives and the economy, we hope that the tax system will also be fair and acceptable.