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Tokyo Gov. Shintaro Ishihara’s plan to levy a new tax on large banks in the metropolis has created a stir. The banks are dead set against it, but Tokyo citizens — and the public at large — are applauding the idea. No Japanese politician, national or local, has made such a widely acclaimed decision in recent memory.

The plan targets some 30 banks that have assets of 5 trillion yen or more and that have head or branch offices in Tokyo. The tax, which would be imposed for five years, is a kind of local business tax, but it is significantly different from the existing one: It would be imposed not on income, but on the size of the business, which is measured by sales. This means that banks would have to pay the tax even if they were running a deficit.

Japanese banks, particularly big ones, are unpopular these days, and with good reason. They are making handsome profits because their cost of money is almost zero. The 30-odd banks in question have reportedly made trillions of yen in business profits in each of the past several years. Many of them have bolstered their capital with massive government aid, yet they don’t have to pay the business tax because bad-debt writeoffs create net deficits in their books.

The banks’ rebuttal — that it is unfair to tax only them — is falling largely on deaf ears. Major parties in the metropolitan assembly are lining up behind the Ishihara plan. Even some higher-ups in the central government are sounding sympathetic. The chances are that the feisty governor will prevail with the backing of public opinion.

There is, however, some truth to the banks’ argument for fair taxation. But the popular sense of unfairness — the feeling that it is not right that big banks enjoy a tax exemption — is overwhelming the principle of fairness. In this sense, the Ishihara plan should be seen as an attempt to put that principle in better perspective, not as a move to “punish” the banks.

The idea itself is nothing new. Many have been saying for years that businesses in all industries, not just banks, should pay taxes regularly for local administrative services they receive, even if they are in deficit. That makes sense. Moreover, such blanket taxation will prevent “tax evasion” by businesses that create paper deficits by offsetting profits with inflated debt payments.

Banks’ balance sheets show net deficits because the banks set aside huge bad-debt reserves in case some of their clients go bankrupt. But there is a time lag between when those provisions are made and when they are actually used to make up for the loan losses. In the meantime, the banks earn considerable operating profits. So they have plenty of surplus cash even though their books show them to be in the red.

The banking industry appears ready to fight it out in court. The question is whether “targeting” banks really runs counter to the principle of fair taxation. But it is not the first time that businesses in selected sectors have been targeted for taxation. Consider, for instance, the gasoline tax to secure funding for road construction or the high excise taxes on liquor and tobacco products.

The bottom line is whether the purpose of taxation has sufficient rationality. If the Ishihara plan aims only to rebuild Tokyo’s debt-heavy finances, it must be questioned. To make it work, an across-the-board tax — one that applies to all businesses on a regular basis — should be introduced. The bank tax should be the first step toward achieving that objective.

The Tokyo Metropolitan Government estimates that the tax will bring in extra revenue of about 110 billion yen a year. The banking industry, however, says the new levy will reduce the combined profit of the 30 banks by 430 billion yen. But this increase in tax burden is only temporary, indeed only for the current fiscal term, because it is due to changes in tax-accounting rules introduced last year.

Banks play up the “damage” from the new tax at their peril. Their alarmist talk may cause the stock market to overreact, bringing down their stock prices and possibly creating a fresh credit crisis. Only by making themselves more efficient so that they can absorb an increased tax burden, therefore, will the banks be able to regain the trust of the market and of society.

It is a pity that government leaders have reacted only vaguely to the tax plan. In a belated official statement on Tuesday, the national government called on the Tokyo government to exercise moderation in levying a new tax only on a selected target, which it feared could violate basic principles of fairness and neutrality in taxation. For Mr. Ishihara, the worst enemy is probably complacency. He must try to make the central government integrate his tax shocker into a more reasonable tax system for the entire nation.

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