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Tohoku reconstruction tax surcharge on firms to end year early but added levy on incomes to stay

by Ayako Mie

Staff Writer

The Liberal Democratic Party-New Komeito ruling bloc agreed Monday to end the special corporate tax surcharge levied to finance the reconstruction of the disaster-hit Tohoku region one year earlier than planned, but will keep the levy added to personal income taxes for 25 years.

“The government will compile its stimulus plan based on the decision to terminate the special surcharge (on corporations),” Takeshi Noda, who heads the LDP tax panel, told reporters after meeting with New Komeito.

Upon reaching the agreement, the coalition demanded that the government secure the funds to compensate for the drop in tax revenues from the termination, achieve wage hikes and expedite Tohoku’s reconstruction.

Since Prime Minister Shinzo Abe in October decided to go ahead with raising the 5 percent sales tax to 8 percent next April, the ruling bloc has been mulling a ¥5 trillion stimulus plan to offset the negative impact of the tax hike.

Ending the corporate tax surcharge a year earlier than planned is one of the key pillars of the economic package, which the coalition is scheduled to unveil Thursday.

Initially, New Komeito had been cautious about reducing the corporate levy alone, as the idea was criticized by the public and people in the Tohoku region, especially at a time when companies have yet to raise wages.

The coalition in April introduced an additional tax on the corporate and income levies to generate ¥10.5 trillion to help rebuild disaster-stricken areas.

While the cut would reduce companies’ annual tax burden by an estimated ¥900 billion, the 2.1 percent surcharge on income taxes stays for another 25 years.

  • phu

    Haha, this is great. How do we get people to spend more so the economy will improve? Why, we tax them more, of course! And when we decide to drop a supplementary tax for reconstruction, who do we stop taxing? Corporations, of course! Because Japanese corporations don’t have a history of sitting on massive mountains of currency for years rather than spending or investing it.

    Oh wait. Yeah, they do.

    “Initially, New Komeito had been cautious about reducing the corporate levy alone, as the idea was criticized by the public and people in the Tohoku region, especially at a time when companies have yet to raise wages.”

    Funny how public criticism would actually make politicians pause. Almost as though serving the public was the purpose of public servants. Though I’m sure their major motivation wasn’t their constituents’ satisfaction, but rather their re-election chances.

    The only point of view from which this makes sense is if it’s an incentive for corporations to raise wages. Unfortunately, it almost certainly won’t work. The forced and unnatural inflation of the yen coupled with the aforementioned tendency to sit on cash means there’s no reason or precedent for this to filter through to workers.

    “…the cut would reduce companies’ annual tax burden by an estimated ¥900 billion…”

    According to an article published by Reuters*, Japan’s fiscal 2012 tax revenue was about $437 billion. That means this cut is likely to kill over 2% of Japan’s tax revenue. I can’t even imagine the greed behind the lobbying that pushed this monstrosity through; how a government decides to end a tax that would otherwise generate $9 billion per year for vital reconstruction (and is admittedly still necessary, as they’re leaving the personal income tax part of it in place for another 12 years) should be completely beyond any thinking person.

    * http://www.reuters.com/article/2013/07/03/us-japan-economy-budget-idUSBRE9620FI20130703

  • Ron NJ

    Nothing to help consumer spending like … removing extra taxes on business and keeping them on consumers?! Trickle-down economic theory, hoooooo!