Japan is set to introduce tax breaks for domestically-made electric vehicle (EV) batteries and semiconductors starting from April 2024, as part of efforts to enhance economic security and promote the country’s energy transition. The move follows similar industrial policies implemented by the United States and the European Union, which aim to encourage companies to shift production away from China.

The Ministry of Economy, Trade and Industry in Japan will propose the tax cuts for companies involved in the manufacturing of strategically crucial items within the country. The tax breaks would be based on the output of batteries and chips. The specifics of the tax scheme, including eligible items, will be drafted by the ministry by the end of this year.

This initiative aligns with the Japanese government’s strategy to secure supply chains for key products. In addition to the tax breaks, the government has already introduced billion-dollar subsidies for chipmakers like Taiwan Semiconductor Manufacturing and Micron Technology to establish plants within Japan. Furthermore, the Economic Security Promotion Act was enacted last year to support these efforts.

The Japanese government traditionally revises its tax code every spring, following political agreement within the ruling coalition and the establishment of the overall course in December.

To secure supply chains for strategic goods, Japan has also unveiled billion-dollar subsidies for chipmakers such as Taiwan Semiconductor Manufacturing (2330.TW) and Micron Technology (MU.O) to build plants in Japan, and enacted the Economic Security Promotion Act last year.

By implementing tax breaks for domestically-made EV batteries and semiconductors, Japan aims to stimulate local production and reduce dependence on foreign sources. This move will not only enhance economic security but also contribute to the country’s energy transition and promote sustainability in the automotive and technology sectors.