"Japan to Promote Tax Incentives for Increased Domestic Production of Semiconductors and Batteries"

Ministry of Economy, Trade and Industry Requests New Tax Benefits from Ministry of Finance
"Considering Deduction for Production Costs, Not Just Investment Costs"

The Japanese government is promoting a plan to provide tax benefits by reducing corporate tax based on the amount of semiconductors and electric vehicle batteries produced domestically, the Nihon Keizai Shimbun reported on the 11th.

In May, Japanese Prime Minister Fumio Kishida (fourth from the left) is taking a commemorative photo after meeting with CEOs of global semiconductor companies. [Image source=AP Yonhap News]

According to the report, Japan's Ministry of Economy, Trade and Industry has requested the Ministry of Finance, which is responsible for the budget, to establish a new "Strategic Goods Production-Based Tax System" next year that reduces corporate tax according to the production volume of electric vehicle batteries and semiconductors. Previously, it was common to deduct part of the investment costs from taxes, but now a plan to include costs involved in product manufacturing as deductible items is being considered.

The tax benefits are being promoted with reference to the United States' Inflation Reduction Act (IRA), which implements measures to reduce corporate tax based on battery production volume and renewable energy generation, Nikkei reported.

This measure is interpreted as being based on the judgment that semiconductors and electric vehicle batteries are strategic goods. Since the COVID-19 pandemic, major countries worldwide have been competing for supremacy by providing subsidies for semiconductors, and although China's influence over batteries is growing, the number of products utilizing them is increasing.

Therefore, Nikkei explained that these measures were introduced with the aim of strengthening economic security and realizing decarbonization. Nikkei stated, "If batteries and semiconductors are excessively dependent on other countries, supply disruptions would have a significant impact," and added, "Not only Japan but also Europe and the United States are creating various preferential policies to boost domestic production."

The Japanese government plans to prepare detailed content, including specific target sectors, by the end of the year.