Under new chairman Mr. Masaaki Honma, the Tax Commission, an advisory body directly responsible to the prime minister, appears poised to give priority to reducing the tax burden on business corporations. The commission must explain how a lower tax burden on enterprises will lead to energized economic activity, stronger competitiveness and higher wages at a time when personal spending, an important component of gross domestic product, is sluggish.
The commission will be reviewing two things — the depreciation-related tax system and corporate tax cuts. At present, up to 95 percent of the value of plant and equipment investment may be counted as a depreciation expense. Raising the rate to 100 percent and shortening the period of depreciation is under consideration. That would enable companies to increase allowable expenses and thus decrease their taxable revenue. It would have the same effect as a tax cut.
Nippon Keidanren (Japan Business Federation) is prodding the commission to lower corporate taxes. The business organization would like to lower the effective corporate tax rate, including the effect of local taxes, to about 30 percent — down from the current rate of about 40 percent. The effective rate of Japan’s corporate tax is about the same as in the United States and Germany, but it is about 7 percent to 10 percent higher than in France, Britain and China.
The 10 percent cut would mean about a 4.5 trillion yen reduction in the tax burden for companies but a loss of the same amount in tax revenues for the central and local governments. If the Tax Commission goes ahead with corporate tax cuts, the public will take it as a boon to the corporate sector since the good performances of enterprises do not fully translate into higher wages and more employment of regular workers. The commission must strive for fairness between companies and workers and between the rich and the poor.
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