Japan Mulls Reform Of Financial Transaction Taxation

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

29 November 2007

The Japanese government and ruling coalition are reportedly considering plans to introduce net taxation on financial transactions by 2009.

According to an online report by Nikkei Net Interactive, changes to the tax system are being examined that would allow investors to deduct losses from stock investments from dividend income by the 2009 fiscal year. The new system could also be extended to interest income by the 2010 fiscal year, the report stated.

It is thought that the Ministry of Finance wants all financial transactions taxed at a flat rate of 20% when the reforms are introduced.

However, at the same time, tax breaks on the trading of stocks may be abolished under proposals from the government's tax advisory panel.

Under a scheme introduced in 2003 to encourage individuals to invest rather than save, the tax rate on capital gains and dividends was cut to 10% from 20%. The capital gains tax cut is due to expire at the end of 2008, while the dividend tax cut is set to expire at the end of 2009, and the government's tax panel has suggested that these tax breaks should not be renewed, despite warnings from investors and analysts that such a move could have a detrimental impact on Japan's equity markets.

The Liberal Democratic Party's own tax advisory panel may, however, recommend that this proposal is reversed.

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