Tax

February 2007

Cabinet To OK Bills Giving Tax Incentives To Service Sector Firms
The cabinet on Tuesday will approve a set of three bills expanding tax breaks to the service sector and providing low-interest loans and other incentives to smaller businesses, a legislative move backing the government's drive to maintain 2.2% economic growth through fiscal 2015. Drafted by the Ministry of Economy, Trade and Industry, the bills include a revision to the Industrial Revitalization Law. The current law allows qualifying manufacturers to depreciate capital investments and applies lower tax rates to property purchases made at the time the firms are established. The change will extend these incentives to the service sector, which accounts for about 70% of gross domestic product. While productivity in the manufacturing sector increased 4.1% from 1995 to 2003, that in the service sector climbed only 0.8%. The revision also aims to encourage the launching of businesses involving intellectual property, such as buying divisions from other firms or developing new products using other companies' idle patents. In these cases, they will be allowed to depreciate 30% of capital investments in the first year of purchases, on top of regular depreciation. Companies undergoing cross-industry reorganizations will also benefit from the revision. Tax breaks will be extended to, for example, a merger of a supermarket and an electronics manufacturer and an integration of a card company and a cellular phone service provider. The other two bills are aimed at revitalizing local economies and smaller businesses. Special depreciation of plant and equipment will be permitted for companies establishing operations in special industrial zones designated by local governments. New businesses making use of regional specialties and tourism resources will be entitled to low-interest-rate loans and subsidies. For instance, a new firm developing apple pies from locally produced fruit will be eligible to borrow at lower rates and will be allowed to depreciate capital investment under a special rule. (Nihon Keizai Shimbun, February 06, 2007)