Prime Minister Junichiro Koizumi said Friday the government may allow local governments to tax corporations on the basis of business size rather than profits, and the rate could differ by region.

“I believe it is better to give local (governments more) discretion,” he said.

At a luncheon at a Tokyo hotel Thursday with House of Councilors members from his ruling Liberal Democratic Party, Koizumi reportedly discussed his plan to allow each prefectural government to independently set rates if the envisioned system of taxing firms is introduced.

Last week in its tax reform plan for fiscal 2003, the government’s Tax Commission urged the quick introduction of its proposed system designed to tax corporations on the basis of business size rather than profits, relying instead on such factors as the number of employees and the size of capital.

Critics of the plan, which will force loss-making firms to pay tax, say its introduction would hurt the economy by pouring cold water on corporate activity.

Big tax cuts called for

Substantial tax cuts for fiscal 2003 are essential given the recent deceleration of economic improvement, economic and fiscal policy minister Heizo Takenaka said Friday.

“I think it is necessary to implement substantial tax cuts as requested by private-sector members of the Council on Economic and Fiscal Policy,” Takenaka said.

The private-sector members of the council chaired by Prime Minister Junichiro Koizumi are calling for 2.5 trillion yen in tax cuts.

Big tax cuts are necessary, Takenaka said, because “there are many uncertainties over the nation’s economy in the next fiscal year.”

Substantial tax cuts are necessary to deal with these uncertainties, he said.

But policymakers remain divided over the size of the tax cuts.

Earlier this week, Finance Minister Masajuro Shiokawa said the size of tax cuts for the next fiscal year should not exceed 1.5 trillion yen, given the nation’s debt-ridden finances.

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