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The government’s Tax Commission on Tuesday proposed abolishing in fiscal 2003 certain tax exemptions granted to salaried employees with a working spouse.

In an interim report released the same day, the tax advisory panel also proposed abolishing certain exemptions granted to small business owners when reporting consumption-tax receipts, in a bid to increase transparency.

Under the current tax system, salaried workers can claim special tax exemptions of up to 380,000 yen from their tax base if their spouse earns no more than 1.03 million yen a year. This deduction is in addition to basic tax deductions for spouses.

It is necessary to abolish the special tax deduction as the system has become outdated, the commission said, referring to the growing number of working wives.

The abolition of the consumption tax scheme meanwhile would affect businesses with annual sales of less than 200 million yen. The current simplified scheme allows small businesses to use a deemed ratio to calculate their tax base for the consumption tax.

The report also calls for a drastic review of the existing special exemption granted to small businesses whose annual sales amount to less than 30 million yen. The report recommends such businesses be made to pay the consumption tax.

“We would like to wrap up a final recommendation for fiscal 2003 tax reform in mid-November,” said Hiromitsu Ishi, head of the commission and president of Hitotsubashi University.

The report serves as a basis for discussions to be held toward the end of this year.

The commission has been discussing a blueprint for the tax system in accordance with instruction given by Prime Minister Junichiro Koizumi in June.

In July, Koizumi announced tax cuts of more than 1 trillion yen in fiscal 2003 to be followed by a tax hike in subsequent years. However, Ishi said it would be difficult for the commission, which is only tasked with designing a basic tax system, to flesh out Koizumi’s idea.

As a way to spur research and development by companies, the commission has recommended a new system to deduct more of such costs from corporate tax, thereby decreasing the tax burden.

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