The Tax Commission on Tuesday proposed a reform plan for fiscal 2003 that would attempt to boost the economy by allowing tax cuts for corporate activity and to secure more revenue by reducing exemptions for individuals.
Although the commission, an advisory panel to Prime Minister Junichiro Koizumi, called for increasing taxes on eight items to mend the country’s fiscal health, it also said that the focus in fiscal 2003 should be on tax cuts to support the economy.
The report was submitted to the prime minister on Tuesday. Political maneuvering over tax reform is expected to mount toward mid-December.
The report states that a “political” decision to implement tax cuts is acceptable though the shortfall in revenues they will cause should be offset by higher taxes in later years.
“We have prepared for a stage for further discussion on tax reforms that would develop from now on. We hope that the discussions will take place on that stage,” said Hitotsubashi University President Hiromitsu Ishi, who heads the panel.
For fiscal 2003, the commission is calling for reforming items ranging from the income tax to the consumption tax based on the principle of creating a sustainable economic and social system through a “simple and fair” tax system.
By abolishing or reducing various exemptions, these reforms mainly translate into tax hikes.
For instance, the panel called for abolishing exemptions granted to salaried workers with spouses and reducing the number of small businesses exempt from paying the consumption tax.
As to tax cuts, the panel proposes reducing the tax burden on companies that invest in research and development — in any field — as well as in equipment and facilities for information technology.
Earlier in the day, Koizumi told Ishi that he hopes to implement tax revisions for fiscal 2003 in line with the direction stated in the report, Ishi said.
Tuesday’s report presents the basic idea for fiscal 2003 tax reform and is the first step for national tax reform over the medium and long terms, according to the Finance Ministry, which is the secretariat for the commission.
This year, the commission compiled the report about one month earlier than usual.
By presenting the report prior to full-scale tax debate by the ruling parties, the panel and the Finance Ministry are hoping to get its contents reflected in the reforms for fiscal 2003.
Ishi said the report is designed to give policymakers flexibility in determining the scale of both cuts and hikes, depending on how the items listed in the report are combined.
Although the Tax Commission compiles a report on tax reform every year, it is the ruling parties — namely the Liberal Democratic Party’s powerful Research Commission on the Tax System — that determines the important details, such as the items and rates.
Separately, the Council on Economic and Fiscal Policy, a key government panel headed by the prime minister, is strongly voicing its opinion from a macroeconomic standpoint this year.
However, it remains to be seen whether there will be significant policy coordination among the three bodies. The LDP tax commission traditionally maintains firm control of national tax policy.
“One thing is clear — the tax commission is no longer the only place to discuss the government’s tax policy,” Ishi said.
“We must make the commission a place to sort out major points and (policy) options on the tax issue.”
Fixed assets tax
Home affairs minister Toranosuke Katayama on Tuesday rejected calls from the business community to lower the upper limit for assessing the taxable amount for fixed assets in shopping and business areas.
Taxes on such assets are calculated on the basis of a maximum 70 percent of their officially assessed value. The business community wants this ceiling lowered to 55 percent.
“We will maintain the 70 percent upper limit,” Katayama, minister of public management, home affairs, posts and telecommunications, told a news conference.
Local government revenues throughout Japan from the fixed assets tax are estimated at 8.7 trillion yen for fiscal 2003, down 385 billion yen, or 4 percent, from the figure projected for fiscal 2002, government officials said Monday.
The fixed assets tax is collected annually by local governments from individual and corporate owners of land and building properties.
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