A government tax panel plans to compile recommendations regarding taxation on securities transactions by the end of this year, with an eye to introducing a comprehensive tax system with a broader basis.
“A subcommittee (on stock transaction taxation) will start discussions next month, and we plan to draw a conclusion by the end of this year,” said Hiromitsu Ishi, chairman of the Tax Commission.
“We will promote discussion again on whether to introduce a comprehensive tax system,” he said.
The commission, an advisory panel to the prime minister, has indicated that the introduction of an aggregate tax system is a desirable option.
A comprehensive system would combine earned income and interest receipts from financial transactions, including stocks, as a broadened basis for taxation.
Ishi said the planned abolition of withholding taxes on stock-trading capital gains at the end of March 2003 constitutes a move toward the introduction of a comprehensive tax system.
The taxes were originally to be abolished at the end of March but were extended for another two years, with politicians of the Liberal Democratic Party voicing concern that abolition now would discourage individuals from investing in the stock market.
Investors have the option of either paying a 1.05 percent withholding tax on the value of share sales — whether or not they have gained on the sales — or of paying a 26 percent tax on the annual total of their capital gains by filing a separate tax return.
Ishi said the subcommittee will also discuss the introduction of a taxpayer identification system, a prerequisite for introducing the new tax system.
“It is increasingly becoming possible to realize the identification number system, so we will fully discuss the matter,” he said.
Meanwhile, Ishi expressed concern over recent tax reform proposals issued by the LDP’s tax panel, such as tax exemption for small capital gains.
“Making revisions to what was decided at year’s end causes a problem for the stability of the tax system,” he said.
He also said his panel will promote discussions regarding a review of the use of special revenues for road construction.
Prime Minister Junichiro Koizumi has expressed a desire to expand the use of the special revenues appropriated for road construction to cover other purposes.
The issue “will be symbolic evidence of structural reform of the economic and tax systems,” Ishi said.
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