Japan Unveils JPY2tn Stimulus Package

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

04 November 2008

Japanese Prime Minister Taro Aso has unveiled a JPY2tn (USD20bn) package of economic 'countermeasures' including extended and expanded tax breaks for homebuyers and assistance to small businesses, as the recently installed leader seeks to steer the national economy through turbulent economic waters.

The main tax measures announced by Aso at a press conference last week included tax reductions on mortgages, action to ease cash-flow difficulties for companies and the extension of reduced taxation on stock dividends.

Speaking of the challenging economic environment that Japan and many other countries now find themselves in, Aso said: "These require unprecedented and deft handling, but I will take on these challenges by mobilizing the full powers of the Japanese government."

Under the stimulus package, the government plans to expand the scale of tax breaks for those paying housing loans up to JPY6m over a 10-year period. This extends a current program which was originally scheduled to expire at the end of December 2008, and represents the largest tax cut of its type seen in Japan. Under the current system, those who bought a new home this year are entitled to a maximum JPY1.6m in income tax deductions over 10 or 15 years.

The package also grants a reduction in unemployment premiums and rebates of around JPY20,000 per average household in fiscal year 2009.

Other measures include an increase in emergency credit guarantees to a maximum of JPY20m from the current maximum of JPY6m; immediate and full depreciation of energy saving-related investments; unspecified tax reductions for small and medium-sized companies; tax breaks to encourage the repatriation of some JPY17tn in overseas corporate income back to Japan, and an extension of the preferential 10% tax rate on capital gains and dividend income received by Japanese investors from stock gains for an additional three years.

According to the government's plans, after the economic situation has improved, more comprehensive reform of the tax system, including the consumption tax, will be launched "promptly...so as to ensure fiscal discipline as well as social security that enables peace of mind." This is to be implemented in stages until the mid-2010s and is likely to entail an increase in the 5% consumption tax.

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