Some 80 percent of companies said they are hesitant about adopting a new group taxation system to be introduced in fiscal 2002, due to a 2 percent surtax on profits that could result in higher taxes overall, according to a recent poll conducted by Daiwa Institute of Research.

The research arm of the Daiwa Securities group surveyed 94 listed companies.

Of the respondents, only two companies said they will adopt the new tax system and 16 firms said they are “highly likely” to do so.

Altogether, the number of positive respondents accounted for less than 20 percent of the total, the institute said.

Many of the negative respondents cited the 2 percent surcharge on profits as the main reason not to adopt it, the institute said.

The surtax, to be imposed on top of the 30 percent overall corporate tax, could up overall taxes in some cases.

The consolidated taxation system, under which taxes are levied on corporate groups as a whole rather than individual group firms, is being introduced in fiscal 2002 as part of the nation’s tax reforms.

Under the system, losses by some group firms can be subtracted from profits by others to calculate taxable income. This is seen as a way of reducing the tax burden for corporations. The government has included the 2 percent surtax in the new system, though only for two years, to compensate for an estimated 800 billion yen revenue shortfall from group taxation.

“The surtax is a major obstacle, apparently, as it reduces the benefits of the new system,” an official of the institute said.

“The surcharge should be abandoned as soon as possible.”

Other negative elements cited by firms included the fact that the new system does not allow firms to carry over losses of subsidiaries, or to report donations as losses.

The tax revenue shortfall will be “much smaller” than the Finance Ministry’s estimate, the institute official said, as fewer companies than expected will adopt the system in fiscal 2002.

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