Japan Agrees On 2012 Tax Proposals

by Mary Swire, Tax-News.com, Hong Kong

13 December 2011

After reaching an agreement with its colleagues in the ruling Democratic Party of Japan (DPJ), the Japanese government is readying its tax proposals for the next fiscal year from April 2012.

The DPJ and the government are reported to have had particular difficulty in agreeing measures to support Japan’s automobile manufacturers, which, after the slowdown in production and spare parts caused by the tsunami and earthquake in northeast Japan and by the floods in Thailand, have also been affected by the rise in the value of the Japanese yen.

It was suggested that the party wanted to abolish the country’s automobile and weight taxes (which are based on a vehicle's tonnage) completely, with the government taking an opposite view as such moves could result in a revenue reduction of JPY900bn (USD11.5bn).

In the end, it has been agreed that only the weight tax would be reduced at a cost of around JPY150bn, while present tax breaks on the purchase of green hybrid and electric cars will be extended for three years, and will not expire in March next year as expected under current legislation.

To further enhance its ‘green’ credentials, the government will also propose the inclusion within its programme of a tax on carbon emissions by companies and a tax break on bank loans for individuals purchasing energy-efficient homes.

In a move to make the tax system more progressive, taxes paid by higher-earning taxpayers are also due to rise, possibly by the establishment of limits to the deductions they are allowed against taxable income.

Japan’s Ministry of Finance is due to draft the overall budget for the next fiscal year later this month, while the government is also due, at the same time, to produce a detailed plan for doubling consumption tax to 10% in stages as part of a medium-term policy target of funding an increase to welfare payments and halving Japan’s primary budget deficit by 2015.

Of course, all of the government’s proposals are subject to approval by the Japanese parliament, where the opposition parties are able to block all of the government’s moves. As the opposition is currently calling for a general election (which is otherwise not due until 2013) before they will agree to consider any tax measures, the government is bracing itself for a difficult time in the Diet.

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