Japan To Unveil Economy-Boosting Tax Cuts

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

27 October 2008

The Japanese ruling coalition is working on a package of tax cuts worth JPY2 trillion (USD20.8bn) in fiscal year 2008, as part of a wider economic stimulus plan to address the global financial turmoil currently slowing economic activity in the country.

The tax cuts are to be announced in the coming days by Japanese Prime Minister Taro Aso, who may soon face an election despite being in the job for only a few weeks. They are likely to include tax relief for individuals and small businesses.

Proposals under consideration include cutting the lower rate of tax paid by small business on annual income up to JPY8mn, and the extension of a scheme which has temporarily halved dividend and capital gains taxes on personal stock investments to 10%. Further measures targeted towards individual taxpayers could result in tax rebates of about JPY65,000 for a four-member household with two children, although coalition members are still debating whether to provide some form of rebate package for low-income households not subject to income taxation.

Senior party members have also called for the extension of tax breaks for housing loans beyond their expiry, slated for the end of this year, in addition to reinforced fundraising support for small and mid-sized companies, and help for policyholders of collapsed life insurance companies.

This would be the second economic package to be unveiled, the first having been announced in August. This was worth around JPY11.7 trillion. The new stimulus package is estimated at JPY20 trillion.

It is anticipated that the proposals will be finalised in the year-end tax reform deliberations.

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