The ruling coalition announced a package of tax reforms for fiscal 2002 on Friday evening that will result in an estimated revenue loss of about 30 billion yen.
The reforms are less drastic than past packages because the government has no money with which to fund a major tax break and Prime Minister Junichiro Koizumi has set a 30 trillion yen cap on new bond issues, according to government officials.
Enactment of the proposals will cut national tax revenue in fiscal 2002 by 20 billion yen and local tax revenue by 10 billion yen, a senior member of the Liberal Democratic Party's tax panel said.
In the package, the coalition -- the LDP, New Komeito and the New Conservative Party -- plans to introduce a group corporate taxation system. To compensate for the 800 billion yen revenue shortfall that the new tax is expected to produce, a 2 percent surtax will be added for two years to the 30 percent group corporate tax.
The government is expected to submit a bill on the group tax system to the Diet by May, backdated to April 1.
In a bid to encourage the elderly to channel more money into stocks and other financial instruments, the coalition has also agreed to phase out the "maruyu" program over three years starting in January 2003. Under the program, aged people are exempt from the 20 percent tax on interest and yields from postal savings, bank deposits and government bonds up to 3.5 million yen.
The three parties also decided to create a special financial zone in Nago, Okinawa Prefecture, to boost the local economy. Under the plan, financial institutions starting business in the town -- potential host for a new airport to relocate U.S. Marine Corps helicopter operations at Futenma Air Station -- would be allowed to deduct 35 percent from their taxable income for 10 years.
The coalition also decided to wait until fiscal 2003 at the earliest before allowing prefectural governments to impose a pro forma standard tax, which would be based on nonprofit standards like combined wages, the size of capital, the number of employees and interest paid on debts.
This method allows taxes to be levied even on companies posting a loss.
Other proposals in the package include:
Increasing allowable deductions for entertainment expenses from 3 million yen to 4 million yen for companies capitalized between 10 million yen and 50 million yen.
Allowing an heir to deduct 10 percent of inherited shares in a family-owned company from the income subject to inheritance tax.
Pushing securities houses to prepare and file tax returns on behalf of individual stock investors when the current withholding tax system on stock sales is scrapped in January 2003.
On Wednesday, the ruling bloc agreed to scrap proposals to raise taxes on cigarettes and "happoshu" low-malt beer in fiscal 2002.
The coalition had informally approved raising the tobacco tax from 7 yen to 9 yen per cigarette in 2002 and to increase the happoshu tax by 10 yen to 20 yen per 350 ml bottle.
Imai opposes surtax
A business leader has reiterated his opposition to a proposed 2 percent surtax on the profits of companies that adopt a new group taxation system and warned that some companies may opt not to adopt the new system.
"I am totally opposed to the surcharge," Takashi Imai, chairman of the Japan Federation of Economic Organizations, said Thursday.
Some companies may not adopt the new taxation system until the imposition of the surtax expires, Imai said after a joint meeting of the Finance Ministry's Fiscal System Council, which he chairs, and the government's Tax System Research Commission.
Consolidated tax is levied on corporate groups as a whole rather than individual group firms. Losses by some firms in a group can be subtracted from profits by others to calculate taxable income, reducing the group's tax burden.
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