Japan To Launch New Tax Panel

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

24 September 2009

The Japanese government will next month launch a new tax panel to focus its efforts towards tax reform.

The new tax reform panel, the organizational structure of which will be discussed by Finance Ministry officials at a high-level meeting on September 24, is expected to replace the two-tier structure of the former Liberal Democrat Party (LDP) administration, which included a tax panel within the governing party in addition to a government tax reform body and whose views often diverged.

The new tax panel will be headed by Finance Minister Hirohisa Fujii and will include other senior members of the Democratic Party of Japan (DPJ), as well as top-ranking civil servants from the Internal Affairs and Communications Ministry.

Japan, like many other developed countries, is facing a demographic timebomb caused by falling birth rates and an increase in the number of retired citizens with very little left in the kitty to support a growing social security budget. However, the problem is particularly acute in Japan, which already has the highest level of debt among the major economies and an economy in long-term stagnation.

Indeed, the new DPJ administration, which formally took power on September 16, ending a long period of domination by the LDP, has moved swiftly to shore up the government's finances by announcing that it will cut "wasteful" parts of the stimulus package launched by former Prime Minister Taro Aso earlier this year. The money saved, which could amount to several trillion yen, could be used to provide tax cuts, although the DPJ has also promised generous increases in public spending in other areas, such as education and the benefits system.

The DPJ has pledged to cut sales tax on automobiles, provide a monthly JPY26,000 (USD273) tax allowance for children under the age of 16, abolish road tolls and reduce fuel tax, and give tax breaks to people buying homes in cash. The corporation tax burden of small to medium-sized businesses will also be reduced. However, the party has pledged to impose a tax on tobacco in a concerted effort to discourage smoking. The party has also pledged to leave the 5% consumption tax rate on hold for four years.

Recommended