Tax

October 2004

The Tax Commission will focus on trimming personal exemptions, such as those for dependents and spouses, for overhauling the personal income tax system. The advisory group to the Prime Minister aims to modify the exemption structure, as well as the national income and regional residence tax rates, in response to changing household compositions and employment patterns. The model household used for the current tax system consists of a husband, homemaker and child. The panel will also seek to redress the relative tax disadvantages faced by two-income and single-person households. The government plans to implement the changes in the five or six years from fiscal 2006. The Prime Minister Koizumi's trinity reform aims to revise the financial relationship between the national and regional governments through such means as transferring taxation authority from national income tax to regional residence taxes. The panel's chairman Hiromitsu Ishi expressed concern that income tax is losing its position as a core tax. He also said that the repeal of a fixed-rate cut that exempts up to Yen290,000 in relief is a precondition for reforming the personal income tax framework. (October 9)

The Tax Commission sets course for tax hikes. The most important among the issues to be dealt with by the panel are plans to halve and eventually abolish the uniform, fixed-rate breaks on individual income and resident taxes. Known as Teiritsu Genzei, individual taxpayers under the system have their income tax and resident tax cut by 20% and 15%, to a maximum of Yen250,000 and Yen40,000, respectively in year-end tax adjustments. Teiritsu Genzei was introduced in 1999 as part of economic revitalization plan. Plans proposed by the government tax panel chief call for the tax reduction to be halved from January and totally abolished the following year. The Teiritsu Zenzei issue is closely related to the task of fundamentally changing the entire income tax system. In addition, business leaders and many in the ruling coalition are against doing away with the tax reduction, which may cause another economic downturn. It is likely that the Tax commission will have a difficulty reaching a conclusion. (October 7, Yomiuri Shimbun, the Daily Yomiuri)

Japan should aim to meet its global warming gas reduction target by actively utilizing the emission rights trading mechanism, a subcommittee of the METI's Advisory Committee for Natural Resources and Energy reaffirmed. The move came as discussions on the introduction of environmental taxes gather momentum under the aegis of the Environment Ministry. While the ministry believes that an environment tax will be highly effective in curbing Japan's greenhouse gas emissions, the advisory committee is concerned that such a tax will increase the burden on businesses even though its effectiveness is still unclear. The Kyoto Protocol will take effect next spring if the Russian parliament approves the ratification of the treaty. Japan will be obligated to reduce its average greenhouse gas emissions over 2008 to 2012 to 6% below the 1990 level. Even if the government's greenhouse-gas-curbing measures are implemented as planned, Japan will likely increase its global warming gas emissions by 5% from the 1990 level by fiscal 2010. (October 5, the Nihon Keizai Shimbun)