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Are they train stations or shopping malls?

This is the question the Tokyo Metropolitan Government is addressing as it prepares to raise property taxes at major train stations as early as September.

Driven by concerns about a declining population, which will mean a drop in the number of commuters, railways are looking to a new source of revenue — “ekinaka” shopping malls built inside the ticket gates.

The business of ekinaka, which means “inside the station,” has expanded so rapidly that it is starting to worry nearby outside businesses, which are losing customers to the station malls.

Railways enjoy preferential treatment for fixed-asset taxes on station land, and businesses in surrounding shopping districts have urged the metro government to reduce inequality.

The tax levied on station land is currently one-third of that levied on neighborhood stores and eateries. Station land has long been regarded as having limited use. Its tracks and train facilities are not perceived as generating the kind of profit as land used for commercial purposes.

The metro government thinks railways have an advantage if they have shops and restaurants on their premises.

“I think it is unfair to have shopping malls near stations pay higher taxes while (malls inside stations) get tax breaks just because they are located inside stations,” Tokyo Gov. Shintaro Ishihara told a news conference in April.

Regardless of the location, the station businesses are in direct competition with those nearby and outside the wickets, therefore there should be a level playing field, taxwise, Ishihara said.

“Look at the stations that have recently been renovated,” Ishihara said, citing Shinagawa and Ueno stations and saying they now differ little from regular shopping areas.

Station trade traditionally has focused on the needs of people on the go, with newspaper kiosks and takeout food stands. But the internal malls are changing their landscape.

East Japan Railway Co.’s mall inside Ueno Station opened in February 2002 with 32 shops occupying 5,900 sq. meters, while the 46 stores at Shinagawa Station that opened in October take up 5,300 sq. meters. Both complexes are on two floors.

The metro government is now reviewing the property taxes for 16 railways, including JR East, Keio Corp. and Tokyu Corp., at stations that have big internal malls.

“We will assess each station to see whether most of the space is being used for railway facilities (or retailers) to decide which” ones will have their taxes raised, said Tetsuya Okubo at the metro tax bureau.

Okubo said Tokyo has not yet decided the details of the increase, including how to change the standards for assessing fixed assets.

The metro government has presented JR East with a general plan to impose higher taxes. It said it will classify an entire station as a site with a building — a higher tax bracket — not a site with railway facilities if the area used for commercial purposes exceeds 20 percent of a station’s total land, the railway said.

JR East, which expects to be hit hard by the hikes, needless to say is not warm to the idea.

“I’m not saying that we are dead set against the idea of paying extra taxes. We just want to have a thorough discussion” with the metro government, said JR East President Satoshi Seino at a June press conference.

“We do not accept the (metro government’s) idea of imposing higher taxes on all the land at a station when (internal) shops occupy more than 20 percent” of the property.

About 16 million passengers use JR East’s stations every day, and JR East has been renovating its stations to include internal malls.

The railway’s revenues from its inside-the-station businesses have grown, up 10 percent over five years to 395.7 billion yen in fiscal 2005.

Shops and restaurants near the stations are worried that railways are ruining their businesses, but aren’t sure that upping taxes is the way to help them get back customers.

“We don’t think (higher taxes) will kill the inside-the-station business boom,” said Toshihiko Kuwajima, head of a metro shopping district promotion cooperative, an umbrella group for shopping street organizations.

However, Kuwajima believes increasing government revenue will benefit communities in the long run.

“Railways are currently making extra money by taking advantage of the tax break, but if higher taxes are imposed, the tax revenue can be used for regional development,” he said.

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