Japanese Tax Revenues Depleted By Recession

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

08 July 2009

The worst Japanese recession since the Second World War has taken its toll on corporate profits, causing tax revenues to plunge.

The Ministry of Finance has reported that tax revenues in the past financial year fell short of government targets – the third consecutive year that tax receipts have failed to meet government expectations.

According to the ministry, JPY44.3 trillion (USD458bn) was collected in tax last year, almost JPY3 trillion lower than the government’s estimated take for the year and 13% lower than the amount collected in the previous year.

Vice Finance Minister Kazuyuki Sugimoto has indicated that tax revenues for the 2009 fiscal year will also undershoot as a result of lower corporate profitability.

These depressing fiscal results will mean that Japan’s already severely indebted government will have to issue yet more bonds. Japan has by far the highest level of government debt among the major economies, which is approaching 170% of gross domestic product.

The figures also cast doubt on the government’s ability to provide further stimulus to the economy after the largest ever extra budget was approved last April, clearing the way for the government to implement an additional stimulus package worth JPY13.9 trillion (USD143bn).

The additional fiscal measures means that, in total, the government will spend around JPY102 trillion on trying to restore economic growth by March 2010.

Much of the stimulus package will be funded by government bond issues. According to the Ministry of Finance, tax revenues will only fund 45% of the total annual budget - the largest deficit ever recorded.

Recommended