Tax

December 2007

Gist Of FY08 Tax Reform Proposals By Ruling Coalition
The following is the gist of tax reform proposals for fiscal 2008 adopted Thursday by the ruling Liberal Democratic Party and its coalition partner the New Komeito party.　The ruling coalition:

• says the consumption tax will provide major revenues to cover social security costs.

• indicates the need to raise the sales tax in the future and says it will consider ''augmenting'' revenue for social security.

• proposes the redistribution of corporate enterprise tax revenues from densely populated Tokyo and other prefectures to cash-strapped prefectures.

• proposes the creation of a ''hometown tax'' to help reduce regional disparities in tax revenues.

• calls for an extension for two years until the end of 2010 of tax breaks for stock investors with annual capital gains of up to 5 million yen and an annual dividend income of up to 1 million yen.　(Kyodo News Service, December 13, 2007)

Business Leaders Praise Ruling Coalition's Tax Reform Plan
Business leaders by and large welcomed fiscal 2008 tax reform proposals made by the ruling coalition Thursday, saying they will help stabilize Japan's social security system and improve the international competitiveness of Japanese businesses. The package of reform proposals ''paves the way for raising the consumption tax as a stable source to finance social welfare programs,'' said Fujio Mitarai, chairman of the Japan Business Federation, the nation's most powerful business lobby known as Nippon Keidanren. Masamitsu Sakurai, chairman of the Japan Association of Corporate Executives, praised a proposal for a greater tax break for corporate research and development programs. The Japan Chamber of Commerce and Industry, which represents smaller companies, awarded high marks to proposed tax cuts for facilitating investment in start-up firms and the handover of businesses from owners to successors, with Chairman Tadashi Okamura calling them ''generous consideration.'' But noting that the reform package includes maintaining the current road-related tax rates, such as the gasoline tax, for 10 years from fiscal 2008, Sakurai said it is ''extremely regrettable that fundamental tax reform has been procrastinated again. (Kyodo News Service, December 13, 2007)

Tax Breaks On Smaller Firms' Investments, R&D To Be Extended
Special tax breaks designed to boost small and midsize businesses' capital spending and R&D efforts will be extended past their March 31, 2008, deadline under plans hashed out Monday by the ruling coalition parties, The Nikkei has learned. Amid spreading signs of an economic slowdown in the wake of sky-high crude oil prices and other factors, the move is intended to lift productivity at smaller companies, whose earnings recovery has lagged behind that of big corporations. Under the investment break, smaller companies receive a 7% break on manufacturing equipment, autos and other capital investments over a certain threshold, resulting in a total of 230 billion yen in tax reductions. The panel of Liberal Democratic Party and New Komeito members was largely in favor of extending the measure in order to invigorate the economy and regional communities. The length of the extension will be discussed down the road. Although there is a permanent 12% tax break on R&D expenses, there is also a special provision that bumps up the break when such expenses rise. This is also scheduled to expire at the end of March. But it will likely be extended because it is seen as necessary for further encouraging research leading to new-product development at smaller companies. Also under consideration is an extension of a tax break on some expenses for developing and training human resources at smaller firms. The moves will be included in the coalition's fiscal 2008 tax system reform guidelines, slated to be compiled by Dec. 13. (The Nihon Keizai Shimbun, December 04, 2007)