Japanese Lawmakers Approve Tax Cut Phase-Out

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

31 March 2005

Japanese lawmakers in parliament’s upper house gave their approval yesterday to the phasing out of a tax break originally passed to help jolt the economy out of recession, in a bid to reduce the country’s mounting debt levels.

As a result of the measure, the tax deduction first introduced in 1999 will be halved to 10% from January 2006, and may be eliminated altogether in the following year - depending on Japan’s economic circumstances - in a move that would effectively raise taxes by some 3.3 trillion yen ($30.8 billion) per year.

Opposition parties, which have objected to the phasing out of the tax break, have expressed concerns that Japan’s economy remains too weak to absorb such a tax hike, especially after figures released by the statistics bureau this week showed that consumer spending dropped by 4.1% in February.

However, the government of Prime Minister Junichiro Koizumi maintains that the measure is an integral part of a wider strategy aimed at curbing Japan’s debt, which is predicted to reach 151% of gross domestic product by 2006 - the highest in the OECD.

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