The government introduced a consolidated tax system Monday to help promote corporate restructuring, especially by making it easier to establish holding companies and spin off loss-making divisions.

Under the consolidated system, taxes are calculated based on the combined profits or losses made by a group. Hence, losses from one company can be set against the profits of another group company for tax purposes, reducing the burden on the group as a whole.

Consolidated taxation is already in place in many countries where business circles insist it is vital for restructuring, especially when establishing holding companies and spinning off unprofitable divisions.

The system affects companies and their wholly owned subsidiaries, with parent firms declaring and paying corporate taxes on the combined income of the group.

The Finance Ministry said the system, which is optional and subject to approval by the National Tax Agency commissioner, will promote restructuring, help raise competitiveness and structurally reform the economy.

But the ministry also estimates that use of the system will reduce tax revenues by 800 billion yen in fiscal 2002.

To cover potential losses, the ministry will broaden the tax base, probably by raising the corporate tax by 2 percentage points for two years for companies that choose to adopt the system.

The Japan Federation of Economic Organizations (Keidanren), however, argues that the additional taxes will wipe out the benefits of shifting to the consolidated system.

Tax revenues fall 7.3%

Japan’s tax revenues in February fell 7.3 percent from a year earlier to 4.08 trillion yen, the Finance Ministry said Monday.

It was the sixth straight month of decline.

Cumulative revenues from the start of fiscal 2001 to February came to 35.6 trillion yen, down 1.9 percent from the same period a year earlier.

In February, income tax revenue fell 25.8 percent to 786.81 billion yen, with revenue from tax withheld from wages down 27.8 percent to 716.98 billion yen. That from declared income rose 3.4 percent to 69.84 billion yen.

A ministry official said the substantial decline in income tax revenue stems largely from falls in levies on maturing long-term postal savings.

Corporate tax revenues fell 6.6 percent to 788.35 billion yen.

Consumption tax revenue fell 2.3 percent, while revenue from liquor rose 0.6 percent.

The ministry official said overall tax revenue is likely to reach the projected 49.63 trillion yen for the entire fiscal year, which ended Sunday.

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