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The state will approve a new taxation system by the Kanagawa Prefectural Government that targets companies enjoying tax exemptions due to cumulative deficits despite being profitable on a yearly basis, the home affairs ministry said Friday.

It is the first time that the national government has accepted an independent taxation system drawn up by a prefectural government since April 2000, when a law was implemented to increase the autonomy of local governments.

In March, however, a sport fishing tax imposed by the governments of a town and two villages in Yamanashi Prefecture was given approval by the national government.

Analysts believe the move is likely to spread to other local governments seeking to ensure a certain level of tax revenue.

Toranosuke Katayama, minister of public management, home affairs, posts and telecommunications, told reporters Friday: “The introduction of the new system does not contravene the economic policies of the national government. We are ready to give a go-ahead to similar tax plans if other local governments map them out.”

Kanagawa Prefecture considers the new system an alternative method before the introduction of pro forma standard taxation.

Under the pro forma standard system of taxation, companies are taxed based on the sizes of their business, such as the number of employees and amount of capitalization, instead of their incomes.

The Kanagawa Prefectural Government plans to put the new tax system into effect as early as late next month in order to accept declarations and tax payments by companies, prefecture officials said.

They said some 430 companies with at least 500 million yen in capital are subject to the taxation, with a 3 percent tax rate for ordinary firms and 2 percent for special corporations, such as credit associations, also known as shinkin banks.

The new system is expected to boost the local government’s tax revenue by some 4 billion yen a year, they said.

The Public Management, Home Affairs, Posts and Telecommunications Ministry believes that the companies affected will be able to pay the new tax because its rates are relatively low.

On the new taxation system, the prefecture’s chamber of commerce said: “It is a thoughtless tax hike when firms are struggling amid a prolonged economic slowdown.

“It will affect badly the employment and investment of corporations.”

Meanwhile, ordinary citizens in the prefecture welcome it, saying it is natural for companies in the black to pay tax.

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