Tax

June 2005

Government Panel Calls For Shifting Taxation Authority From FY07
The government's Tax Commission plans to urge for the repeal of a 1999 income tax cut in fiscal 2006 as well as a fundamental shift in income taxation authority from the national to regional governments from 2007, The Nihon Keizai Shimbun learned Friday. The panel will include the recommendations in a report to be released next week. The flat-rate income tax relief, totaling up to 290,000 yen per year, is to be halved under fiscal 2005 tax reforms, and the advisory panel to Prime Minister Junichiro Koizumi seeks to scrap the remaining half in the fiscal 2006 reforms. Regional residential tax rates -- currently divided into 5%, 10% and 13% brackets -- would be standardized at 10%. In order to offset the increased tax burden from the residential levy for low-income earners, a new 5% bracket is being considered for national income taxes. The bottom income tax bracket is currently 10%. The maximum combined rate from the national income and residential taxes would be maintained at 50%, with the top income tax bracket increasing from the current 37% to 40%. The effective tax burden from the two taxes would remain unchanged for most taxpayers, but a greater portion of revenues would go into the coffers of regional governments. Residential taxes are currently based on the previous year's income. The tax panel will consider revamping the system so that payments are made in the year the income is earned, the same framework used for collecting national income taxes. In addition to reassessing tax rates, the commission will propose a review of tax exemptions. The standard employment income deduction, which is automatically taken out of earned income, is designed to cover the expenses typically incurred by company workers in the course of their employment. While the tax panel will recommend the creation of a flexible framework under which employees can deduct for actual expenses, such a measure could effectively reduce the deduction. Of the issues to be outlined in the report, the elimination of the flat-rate income tax cut and the reworking of tax brackets are among those to be addressed for fiscal 2006 reforms. Many of the other issues, including the changes to deductions and credits, will be deliberated over several years. And given that full-fledged discussions regarding a consumption tax hike could begin as early as next year, a sharp rise in taxes is increasingly likely. (The Nihon Keizai Shimbun, June 18, 2005)

Tax Revenue Up 5.8% On Strong Corp Earnings, Job Market
Tax revenue through April 30 jumped 5.8% on the year to 38.38 trillion yen, fueled by robust corporate earnings that have improved the job market and household incomes. Corporate tax revenue continued to rise, and income tax revenue is showing signs of a sustained recovery as households benefit from dividend income and wage increases. Tax revenue figures are tabulated from April through the end of May of the following year, resulting in a 14-month tax year. At the end of last year, the Ministry of Finance revised its fiscal 2004 tax revenue forecast to 44.04 trillion yen, up about 2 trillion yen from the initial projection. And as of April 30, revenue has reached 87% of the target. Given that the May tally will include corporate tax revenue from companies whose fiscal year ended March 31, the total for the 2004 tax year is expected to reach about 45 trillion yen and mark the second straight year the target was exceeded. Through the end of April, income tax revenue rose 5.4% to 14.58 trillion yen for the 2004 tax year. Even without the May revenue, the total already exceeds the projected figure of 14.09 trillion yen for the full 14 months. (The Nihon Keizai Shimbun, June 02, 2005)