Japanese PM Calls For More Debate On Cancellation Of Tax Cut

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

30 September 2005

Japanese Prime Minister Junichiro Koizumi has sounded a cautionary note on the government's plan to end a temporary income tax rebate, arguing that the reinstatement of tax levels at former rates should not be allowed to jeopardise the fragile economic recovery.

Introduced in 1999 in an attempt to kickstart the languishing economy, the temporary tax cut reduced the income tax burden at the national level on workers by 20%, and at the local level by 15%. But, with the economy showing signs of recovery and with the government keen to shore up its finances as it prepares to meet challenging budgetary targets, the ruling Liberal Democrat led coalition is planning to phase out the tax break from fiscal 2006.

However, responding to a question from the opposition leader Seiji Maehara in parliament earlier this week, Koizumi appeared to backtrack on the plans to abolish the tax rebate by calling for further talks on the issue.

"We should debate this issue further based on the discussions we've already had on the 2006 tax revision with a sufficient assessment of the economy," Koizumi stated.

Speaking earlier this month, Hiromitsu Ishi, chairman of the government's Tax Commission, said that under current plans, by March 2007, the tax cut will have been phased out in its entirety, an action he believes is a necessary step.

"If we don't repeal the reduction, we will never be able to carry out drastic tax reform in fiscal 2007 as suggested by Prime Minister Koizumi," he stated.

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