Japanese Tax Panel Finally Reaches Agreement Over Stock Tax Reforms

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

04 October 2001

To the great relief of Japanese investors, senior tax officials from the country's ruling Liberal Democrat Party finally reached an agreement on Tuesday over reforms to the securities tax system after months of wrangling.

Although it was agreed long ago that reform was necessary in order to stimulate Japan's ailing stock market, progress has been painfully slow as a result of disagreements over withholding tax on stock sale transactions.

Under the current two-tier withholding system, tax on stock transactions is paid either as a 1.05% charge on individual sales of shares, or as a 26% levy on total gains for the year. Although the two-tier system had been due to expire in March 2003, divisions occured as some experts argued that it should be extended in order to give investors greater choice, while others believed that it should be abolished earlier to speed the simplification process. January 2003 is the date which has finally been agreed upon.

The tax panel also agreed to cut the capital gains tax rate from 26% to 10% as a temporary measure when the transition occurs.

The Japanese Prime Minister, Junichiro Koizumi, has repeatedly stressed the need for the country to move away from a culture of savings, and towards investment in order to stimulate economic growth, and is said to be pleased that an agreement has finally been reached. 'Taking into account a shift towards favouring investment...and in trying to build an infrastructure for a more robust market, we plan to submit a bill on the taxation system that would support structural reform in the securities market during the current parliament session,' he said in an interview with Japan Today.

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