Japan Tax Panel Urges Early End To Withholding Tax

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

19 September 2001

A subcommittee on Japan's government tax panel is pressing for the abolition of withholding tax on stock sales to be brought forward from the planned date of April 2003 in a bid to boost the country's struggling stock market.

Since April this year, the government has been keen to push through its securities tax reform programme for individual investors as part of an emergency economic stimulus package, and will raise the issue of withholding tax during an extraordinary parliamentary session on September 27.

Currently, investors in Japan are given the choice of either paying a withholding tax of 1.05 per cent on share sale values, regardless of whether or not they have gained or lost, or investors can pay 26 per cent on the total of their capital gains accrued in one year.

Originally due to be scrapped by the end of March this year, the withholding tax option was extended for a further two years because the coalition government was worried that it could deter some investors from investing in the stock market.

The tax panel subcommittee has suggested that in light of the withdrawal of the withholding tax, the capital gains tax on stock transactions should be reduced to 20 per cent and tax breaks for losses on stock transactions should be allowed. It also recommended that a tax-free allowance of one million yen (US$8,488) for long-term individual shareholders, due to be implemented next month, be abolished or lowered when the withholding option is removed.

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