From Jan. 1, Japan will tax profits on bond sales and allow investors to cut their tax payments by offsetting gains and losses in bond trading with those in equity transactions.
The bond sales tax is set at 20.315 percent, the same as the tax on profits from equity transactions. The availability of gain-loss offsets between equity and bond transactions is designed to promote shifts from savings to investment, sources said.
Public and corporate bonds in investment trusts, such as money management funds, will become taxable as well.
Previously, many investors held bonds until maturity. But in recent years, not only institutional but individual investors have been actively trading bonds before maturity to take windfall profits. Under the circumstances, the fairness of taxes has been questioned, as stock sale profits are taxed while bond sale profits are not.
The securities industry welcomes the new tax system.
“Investors will appreciate the system” because their gains in stock trading can be offset by bond trading losses for fewer tax payments, a major brokerage official said.
In addition, investors who incur net losses in bond and equity transactions will be allowed to offset the losses with profits over the next three years.
The securities and commodity industries have long been requesting the introduction of a similar system for commodity and financial futures as well as other derivatives.
But the ruling Liberal Democratic Party and its coalition partner Komeito have been reluctant to accept the request for fear that some investors could try to escape from paying taxes by intentionally creating losses in derivatives trading.