Japan has decided to abandon its plan to introduce an environment tax in the forthcoming fiscal year starting in April, taking into account strong opposition from the business community and ruling party lawmakers who are preparing for an upper house election next summer, government sources said on Monday.

With the decision, Prime Minister Yukio Hatoyama's Cabinet will likely find it more difficult to raise enough money for its key policies, amid a shortfall in tax revenue. Going back on its commitment, the government led by the Democratic Party of Japan may not scrap all provisional gasoline and other automobile-related taxes at the end of this fiscal year. The complete abolition will lead to a shortage of about 2.5 trillion yen in national and local tax receipts.

The Cabinet is trying to decide on the specifics of tax reforms for fiscal 2010 by the end of this week. Earlier this month, Deputy Prime Minister Naoto Kan, Finance Minister Hirohisa Fujii and internal affairs minister Kazuhiro Haraguchi agreed that the government will try to introduce an environment tax in fiscal 2010.

The Environment Ministry has been requesting that the government establish the tax system next April, generating about 2 trillion yen in new revenue. But Hatoyama was wary of implementing it too soon after the three ministers' agreement.

Voters who have been expecting reduced tax burdens might feel betrayed by the DPJ and some ruling party lawmakers are afraid this could have a negative effect on the House of Councillors election in July.

In addition to a rise in operating costs of Japanese industry, the new taxation would increase heating and power bills. Fears over the impact on people's lives amid the recession are also behind the decision to delay the introduction, the sources said. The government will explore the possibility of introducing an environment tax in fiscal 2011 or later.

Interestingly, though, Mainichi reports from a survey by Japan's Ministry of the Environment, done in July 2008,  had shown that more than 40 percent of major enterprises in Japan favored the introduction of an environment tax to curb global warming back then.

Until setting up the new green tax system, the government is studying whether it is feasible to keep some of the auto-related taxes or modify the present provisional tax rates for the purpose of reducing greenhouse gas emissions, the sources said.

The DPJ's campaign platform for the last general election in August said the party will "study the introduction" of a new tax system aimed at combating global warming, without specifying a time frame.

The DPJ, meanwhile, pledged to abolish or reduce additional taxes imposed at the time of purchase on gasoline and automobiles in the year starting in April as part of its efforts to boost consumer spending. The extra taxes were introduced in 1974 with the aim of securing sufficient funds for building and maintaining roads. For example, the provisionally raised rate on gasoline has led to its prices being 25 yen per liter higher nationwide.

In Japan, The Basic Law for Establishing the Recycling-Based Society was enacted in 2000. The law clearly acknowledges the responsibilities of the central government and businesses as waste generators, and was the catalyst for the expansion of ecobusiness.

In other words, the law represents an evolution from the 20th century ecobusiness model focused on disposal facilities to a new 21st century model that aims to build a recycling-based system, and repair and alter the current system.

The Ministry of the Environment predicts that the market will grow to a giant 47.2 trillion yen scale by 2010. Japanese Ecobusiness will definitely grow in the next decade, with or without the environment tax. (Breitbart)