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Japan: Tax Reforms to Increase Burdens on Individuals
Source: japantoday.com
Source Date: Wednesday, December 15, 2010
Focus: Institution and HR Management
Country: Japan
Created: Dec 21, 2010

The Japanese government will seek to place greater burdens on individuals while reducing those on companies under its latest tax reform plans, which will be approved by Prime Minister Naoto Kan’s cabinet later this week, a government panel said Tuesday.

The Tax Commission, headed by Finance Minister Yoshihiko Noda, outlined its policy recommendations for Kan, including a total extra burden on individuals of up to 553 billion yen over the next few years as well as a corporate tax cut aimed at stimulating the economy by encouraging companies to increase investment and domestic employment.

The panel will also propose introducing a new levy on carbon emissions in October 2011 to fight global warming and extending the capital-gains tax break for another two years until the end of 2013 for the purpose of revitalizing Japanese stock markets following the global financial turmoil in 2008.

Revisions to deductions for income and other taxes will mainly lead to higher burdens on individuals, especially those with higher income levels.

The government could limit deductions from taxable income for salaried workers with annual pay of more than 15 million yen and significantly reduce the deduction amount for executive pay of over 20 billion yen.

The commission will also include in its recommendations a plan to seek a 5 percentage point cut in the effective rate of corporate income tax, which currently stands at around 40%, quite high by international standards and widely seen as undermining corporate appetite for fresh business investment.

On Monday, Kan instructed key economic ministers to enable a 5-point cut, ending the wrangling within the government over how much the tax should be reduced after the Finance Ministry proposed a cut of 2 to 3 points citing the need to maintain fiscal discipline, only to trigger opposition from the Ministry of Economy, Trade and Industry, which was backed by business leaders.

The decision would reduce tax burdens on companies by around 1.5 trillion yen.

The environment tax would come in the form of higher prices of such fossil fuels as coal and natural gas, with a rise in the country’s tax revenues estimated at about 240 billion yen a year.

The government would maintain the 10 percentage point break for taxes on dividends and capital gains from stock investment.

The tax break, which was to end in 2011, would again be extended until 2013 after the Financial Services Agency, the nation’s financial watchdog, opposed the plan to bring the tax rate back to 20%. It was originally introduced in 2003 to expire in 2008.

Kan’s Cabinet will approve the set of recommendations on Thursday, government officials said.

The tax reform proposals for the next fiscal year will help secure necessary funds for the government to finance its key policies, including some pledged by Kan’s Democratic Party of Japan during its previous election campaigns. The commission’s work is in line with the government’s process of drafting later this month the state budget for fiscal 2011, which will start in April.
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