The government of Prime Minister Yoshihide Suga will review the basic act on small and midsize enterprises to change the definition of such businesses in efforts to spur industry realignment.
The change is also aimed at encouraging such companies to enhance productivity and raise minimum wages, government officials said.
But hasty moves to redefine small and midsize companies, which are eligible for preferential tax treatment and subsidies, would cost them such benefits and may force some companies out of business, some officials warned.
Small and midsize businesses account for 99.7 percent of all Japanese companies. The 1963 law sets out the definition of such businesses for each industry sector. In the manufacturing industry, for instance, such businesses are defined as those capitalized at ¥300 million or less or with a workforce of up to 300.
Since companies that meet the definitions are eligible for preferential tax treatment, they are reluctant to boost their business scale, some analysts said, adding that changing the definitions may prompt industry realignment.
Suga has told industry minister Hiroshi Kajiyama to work out a mechanism that will encourage reorganization among small and midsize businesses. A senior official at the industry ministry said that "we are in the same direction" as the prime minister regarding industry realignment aimed at improving productivity.
But the official also said some companies may fall into management difficulties after becoming no longer eligible for tax breaks and subsidies due to changes in the definitions of small and midsize businesses.
The official is worried that if the government pushes too hard for industry realignment in the countryside, where the population continues to decline and age, companies that are needed for local communities may leave through mergers and acquisitions.
Unless realignment is promoted at the right speed and by the right method, considerable adverse effects may be caused to some areas, the official said.
As chief Cabinet secretary under the government of Prime Minister Shinzo Abe, Suga led calls for a hike in minimum wages. A set of policies he drew up for the Liberal Democratic Party leadership election this month stated clearly that he will work to raise minimum wages across the nation.
But higher minimum wages may put additional burden on small and midsize businesses afflicted by the novel coronavirus crisis.
Kajiyama has suggested that raising minimum wages should follow the strengthening of earnings capacity at small and midsize businesses.
Optimism is not warranted for the course of the reforms envisaged by the Suga government amid uncertainties over the economy.