Tax

June 2006

Tax Panel Eyeing Full Depreciation Of Capital Spending
The Tax Commission, an advisory panel to the prime minister, has begun considering allowing firms to fully depreciate their capital investments, Chairman Hiromitsu Ishi told reporters Friday.
Businesses can now depreciate only up to 95% of their capital investments. But this "has problems in light of international standards," Ishi said. Companies use depreciation to take certain amounts of their capital investments every year as losses, thereby reducing their tax bills. Consequently, Japanese firms are said to be at a disadvantage against foreign firms, which can write off 100% of capital investments. This 100% rule is used in the U.S., U.K. and South Korea. The rule change, which is also being discussed by the ruling Liberal Democratic Party's tax panel, will be a topic in the proposed fiscal 2007 tax reform. The Tax Commission will seek to include the 100% rule in a report due out this autumn. Ishi also said the panel would look into simplifying depreciation methods. Japan now divides capital equipment into 388 categories -- far more than other developed countries. He also said the panel was considering shortening the amount of time over which equipment can be depreciated -- currently 10 years on average in Japan for major equipment. With technology changing so quickly, manufacturing equipment is becoming obsolete faster, Ishi said. (The Nihon Keizai Shimbun, June 3, 2006)