Japan's Government Agrees Tax Reforms For Fiscal 2004
By by Mary Swire, Tax-News.com, Hong Kong
18 December 2003

Japan’s ruling coalition has agreed a package of tax and pension reforms for the 2004 fiscal year which it hopes will meet the needs of the country’s growing welfare budget whilst addressing the fragile economic situation.

The main proposals include the one-year extension of current tax breaks for housing loans which were set to expire at the end of 2003. This measure is designed to help support the country’s property market, which continues to suffer from falling prices. After the next fiscal year deductions on housing loans will be reduced on a yearly basis until they reach 1.6 billion yen in 2008.

Another important move is the capping of employees’ future contributions to their pension schemes at 18.35% of average income, which is to be split on an even basis between the worker and the employer. This will be achieved by a gradual increase on an annual basis of the contribution rate, currently 13.58%, until it hits 18.35%.

Overall, the tax package cuts the national tax burden by some 10 billion yen in the coming tax year whilst increasing the burden at local level by around 20 billion yen.

"Tax reform debate was especially significant this year given that we embarked on setting guidelines for the future, in terms of the pension system and reforming the relationship between central and local governments," explained Yuji Tsushima, head of the Liberal Democratic Party’s tax commission, although he added that the outcome in revenue terms is “basically neutral."

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