Japanese Prefectures Urge Central Government for Tax Revenue Measures Amid Fuel Surcharge Abolition

Governors Call for Action on Revenue Shortfalls

The governors of Japan's 47 prefectures formally urged the central government on Wednesday, November 26, 2025, to implement measures to counteract expected declines in local government revenues. The request, made by the National Governors' Association at a meeting hosted by the central government at the Prime Minister's Office, highlights concerns over the planned abolition of provisional gasoline and diesel tax surcharges.

The governors emphasized the critical need to improve and strengthen local government finances to maximize the growth potential of regional areas. Nagano Governor Shuichi Abe, who heads the association, stated, 'It's extremely important to improve and strengthen local government finances to make the most of the growth potential of regional areas.' They also called for correcting existing tax revenue gaps among local governments, noting that disparities in administrative services are widening, and advocated for uniform child-rearing support measures nationwide.

Abolition of Fuel Surcharges and Estimated Impact

The provisional gasoline tax surcharge of ¥25.1 per liter is slated for abolition on December 31, 2025, while the provisional gas oil (diesel) transaction tax surcharge of ¥17.1 per liter will be abolished on April 1, 2026. This move, agreed upon by ruling and opposition parties on November 5, 2025, is part of a broader package of measures aimed at tackling inflation.

The combined abolition of these surcharges is projected to result in a total revenue drop of approximately ¥1.5 trillion per year for both central and local governments. Local governments alone are expected to face a reduction of some ¥500 billion annually.

Central Government's Response and Future Plans

In response to the governors' appeal, Prime Minister Sanae Takaichi acknowledged the concerns, stating that the government would consider the impact on local tax revenues and 'ensure necessary general revenues.' The central government's commitment comes as the Lower House passed legislation to scrap the gasoline tax surcharge on November 25, 2025, with the Upper House Financial Affairs Committee approving it on November 27, 2025.

To mitigate the anticipated revenue shortfall, the ruling and opposition parties have agreed to explore various measures, including:

• Cutting government expenditures
• Scaling down special tax cuts for corporations
• Raising taxes on high-income earners

These discussions aim to reach a conclusion by the end of the year, with a focus on securing stable alternative funding sources over the next year to prevent adverse effects on road maintenance and infrastructure projects. As a temporary measure until the surcharges are fully abolished, subsidies to oil wholesalers are being increased in stages to stabilize fuel prices.