Tax

September 2004

Tax panel will recommend ending tax-cut scheme. The Tax Commission will compile a report in November that will recommend scaling down and eventually abolishing a proportional income and individual residential tax-cut scheme, according to commission Chairman Hiromitsu Ishi. It will be difficult to manage national finances without scaling down and abolishing the scheme. It would be realistic to reduce the cuts by half over two years starting in January 2006. Ishi emphasized the necessity to eventually abolish the tax cuts altogether, saying the scheme was distorting the structure of the nation's income tax system and that the nation's economy was in far better shape than when the scheme was introduced in 1999. Ishi said that it would be difficult to end the cuts all at once, as doing so would amount to a drastic tax increase. (September 23, The Yomiuri Shimbun, the Daily Yomiuri, the Mainichi Shimbun)

Japan faces collapse in fiscal 2025 unless the consumption tax is raised to accommodate the amount of government debt, which is expected to be five times larger than the nation's gross domestic product, according to the Japan Business Federation (Nippon Keidanren), Nippon Keidanren added in a report that without the tax hike, the national contribution ratio, the ratio of income taxes and social security payments to national income, would top 100% in fiscal 2025. In early 2003, Nippon Keidanren proposed raising the consumption tax rate from the current 5% by 1%-age point every year from fiscal 2004 to 16% in fiscal 2014 in order to finance ballooning social security costs. The latest report by Nippon Keidanren recalculates the estimate, taking into account changes since then such as pension system reforms. (September 15, Kyodo News, the Daily Yomiuri)