Staff writer The Cabinet effectively admitted on Tuesday that there is nothing the central government can do -- at least for now -- to stop Tokyo Gov. Shintaro Ishihara from implementing his plan to tax banks. One option the central government may have to forestall the negative effects it says the tax will bring is to revise the Local Tax Law, which apparently makes Tokyo's plan legal. Another option would be to take the opportunity to introduce a similar local corporate tax, lighter and broader in scope, to all prefectures. While such a package would be technically feasible and popular in many prefectures, its political feasibility remains uncertain.Tokyo's bank-tax plan is based on article 72 of the Local Tax Law, which allows local governments to flexibly set the basis for local corporate taxation. At present, the local corporate tax in all prefectures is levied on companies' profits, protecting those in the red. Tokyo instead plans to levy a 3 percent tax on large banks' gross profits, which are always positive because they are the amount from which costs and losses are subtracted. "There is one means left to stop Tokyo," a Finance Ministry official said. "Just revising the local tax law would do it." But that idea has not been seriously discussed within the government because limiting the leeway that local governments have in setting their own taxes is widely considered contrary to the trend of decentralization. Any revision to stop Tokyo could also make it impossible for other deficit-ridden prefectures to find new ways of securing revenue. Hence the calls for a new corporate tax. Yoshihiko Tsuchiya, governor of Saitama Prefecture and head of the national governors' association, requested Monday that Chief Cabinet Secretary Mikio Aoki introduce a stable method of taxing local businesses nationwide as soon as possible. The kind of tax that Tsuchiya wants is similar to what Tokyo envisions in that it would be levied on more stable criteria, such as aggregate salaries or the number of employees, rather than profits. The major difference, however, is that this universal tax would be a mile wide and an inch deep to target all sectors at a low rate. In fact, a so-called "gaikei-hyojun" local tax that can even be applied to loss-making firms has long been under consideration by the central government. But business associations have blocked such plans in past decades for that very reason. This is believed to be one of the reasons why Ishihara is targeting only banks, which the public now dislikes. The government Tax Commission, an advisory panel to the prime minister, proposed in July that a local corporate tax should be introduced as soon as possible to stabilize prefectural government revenues, but it added that the state of the economy must be considered in timing such a plan. The Liberal Democratic Party's tax panel, which has more immediate power on annual tax revisions, is also aiming to introduce such a tax. But the economic slump has halted the move so far, apparently making recovery the precondition for a new universal tax.
