Tax

September 2007

Business Lobbies Seek Tax Breaks For R&D, Small-Firm Succession
Tax measures to promote R&D and help small-company owners hand their businesses to the next generation are among the recommendations of Japan's leading business lobbies for fiscal 2008 reforms.　Citing the importance of technological innovation, the Japan Business Federation, or Nippon Keidanren, is calling for increasing the corporate tax credit permitted for R&D outlays. The current ceiling is 20% of a company's corporate tax obligation.　The Japan Chamber of Commerce and Industry recommends reducing the inheritance tax burden on such business assets as unlisted stocks, contending that at least 80% of the taxable value should be waived.　In April, the Japan Association of Corporate Executives also proposed a framework under which the inheritance tax would be reduced for business transfers that took place under the previous owner.　(The Nihon Keizai Shimbun, September 25, 2007)

66% Of Regional LDP Leaders Back Consumption Tax Hike: Poll
Two-thirds of regional Liberal Democratic Party officials support an increase in the consumption tax rate, while 21% are opposed, according to a Nikkei Inc. survey.　 Officials in the party's prefectural organizations were contacted by phone or questionnaire Wednesday and Thursday. Responses were received from the representatives of 46 prefectures, with only Yamagata Prefecture failing to reply. The party leadership of 31 prefectures, including Iwate and Osaka, expressed either conditional or unqualified support for raising the consumption tax. Many cited fiscal considerations in saying that a higher rate is inevitable. Former Chief Cabinet Secretary Yasuo Fukuda and former Foreign Minister Taro Aso, who are running in the LDP presidential race to succeed Shinzo Abe as the party leader, have both commented on the need to review the consumption tax. The winner of that race will become the nation's next prime minister because the LDP holds a majority in the lower house. Officials of 10 prefectures said they opposed a higher consumption tax rate. "Spending cuts should come first," the Tokyo representative insisted. "It's too early to even discuss the issue." "At a time when regional economies are slumping, this would have a negative impact," according to the Oita Prefecture official. On an appropriate time for dissolving the lower house and holding a general election, the leadership of 35 prefectures said no sooner than next summer. "The later, the better," said the party leader from Toyama Prefecture. "A dissolution now would only back the LDP into a corner." The leaders of seven prefectures saw next spring as the right time, when the new budget takes shape. None suggested that the lower house should be dissolved within the year. (The Nihon Keizai Shimbun, September 21, 2007)

Tax Panel Head Eyes Proposals By Late Nov
The government's tax panel launched full-scale debate Tuesday on tax reform for fiscal 2008, with its chairman pledging to compile a set of proposals, including those on the sales tax, by late November.　''We'd like to end our discussions by writing up proposals,'' Yutaka Kosai, chairman of the Tax Commission, said at a news conference.　Kosai made the remarks when asked if he plans to make proposals on tax reforms for fiscal 2008 by late November.　The head of the tax panel, which advises Prime Minister Shinzo Abe, said it is the panel's duty to draw up recommendations on tax reforms in response to Abe's request.　Apparently with the opposition-dominated upper house in mind, however, Kosai said he has no idea about whether such recommendations will be implemented as proposed.　''It's needless to say that raising the consumption tax rate is one of important options regarding securing stable revenues,'' Kosai said.　''But I cannot say now when the government will raise the sales tax or if the government will definitely carry it out,'' he said.　The government had hoped to conclude debate on key tax issues by the end of this year, including on whether to raise the consumption tax rate from the current 5 percent. But speculation has arisen that it will be difficult for the government to meet the timetable.　Earlier in the day, Finance Minister Fukushiro Nukaga reiterated that the government should aim at concluding debate on tax reform, including the sales tax, during the current fiscal year.　''As initially scheduled, we should begin discussion on comprehensive tax reform, including the consumption tax, in the fall and reach a conclusion within fiscal 2007,'' Nukaga said at a news conference in the morning.　On Monday, Abe made no mention of a deadline for tax reform debate in his policy address at the Diet.　Observers say the premier's speech indicates a setback from his initial resolve to conclude debate on tax reform in the current fiscal year through March 31, 2008.　But Nukaga suggested that Abe simply made a tactical retreat in the face of a drastic change in the power balance in the House of Councillors, where the opposition bloc won a majority as a result of the July upper house election.　''I believe the prime minister shared my view that tax reform debate should proceed with an aim to concluding it in fiscal 2007,'' he said.　''But since the political situation has changed and the ruling parties will need to consult with the opposition parties (over tax reform), I think the prime minister used a mild expression,'' Nukaga said.　Echoing the finance minister's view, Kosai said Abe used such an expression given the political situation.　(Kyodo News Service, September 11, 2007)

Govt Tax Panel Faces High Hurdles To Sales Tax Hike
The government Tax Commission is set to convene as early as next week to resume tax reform discussions including a consumption tax hike, but it faces an uphill battle now that the ruling coalition no longer holds a majority in the upper house.　Meeting at the Prime Minister's Official Residence Wednesday, Tax Commission Chairman Yutaka Kosai and Chief Cabinet Secretary Kaoru Yosano agreed to proceed as planned to launch major tax reforms discussions this month.　"We talked about resuming the commission's deliberations but we did not delve into specific tax reform issues," Kosai told reporters after the meeting.　Commission members are expected to use the upcoming meeting to compile a rough timetable for topics to be discussed such as the consumption tax and income and corporate taxes. In March, the commission installed a survey and analysis subpanel that had worked until early August to compile findings in preparation for focused discussions set to begin this month.　The commission is expected to draw up its recommended reforms for fiscal 2008 by November.　The key focus of tax reform discussions is anticipated to be a possible consumption tax hike. The government is scheduled to increase the basic pension burden shouldered by the national treasury to 50% in fiscal 2009. Because this would require the government to come up with about 2.5 trillion yen, the Tax Commission has considered a consumption tax hike as a viable source of funding.　But since the ruling coalition's crushing defeat in the July upper house election, a bill calling for a tax hike is likely to face serious challenges. For this reason, the commission plans to iron out key points when it deliberates on the issue.　Another issue that the commission needs to address right away is securities tax breaks. In 2003, the government adopted a temporary program to reduce taxes on capital gains and dividends to 10% from 20% in an attempt to boost the stock market. But the tax breaks on capital gains and dividends are set to expire in late 2008 and at the end of fiscal 2008, respectively. The Financial Services Agency has called for an extension, but the Tax Commission is likely to phase out the tax breaks alongside the introduction of a uniform tax on financial income.　Kosai has stated that the commission will consider boosting taxes on pension benefits and retirement bonuses.　The government and ruling coalition have stood up for a view that major tax reforms should be realized by around fiscal 2007. Kosai has also indicated an interest in lowering the effective rate for corporate taxes in a bid to bolster the international competitiveness of companies.　But unless the government is able to carry out a consumption tax hike, it will not be able to secure a source of revenue for policy-driven tax cuts.　Amid growing concern that major tax reforms will end up postponed, it remains uncertain whether the tax commission will be able to unveil specific measures capable of balancing fiscal rebuilding and economic revitalization.(The Nihon Keizai Shimbun, September 06, 2007)