Japan's LDP To Oppose Corporate Tax Plans

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

13 June 2002

As this weekend's G7 meeting in Canada approaches, confusion over Japanese tax reform has been steadily increasing.

Japanese policymakers have long been divided on the issue, with key officials such as Finance Minister Masajuro Shiokawa, and the head of the government's Tax System Council Hiromitsu Ishi, calling for corporate tax cuts to invigorate the economy, and Prime Minister, Junichiro Koizumi advocating fiscal prudence, and the balancing of any tax cuts with increases elsewhere in order to maintain a steady revenue stream.

Last Friday, the Prime Minister issued a vague confirmation to that effect, although very little detail was given. However, Mr Ishi reported this week that a proposal to tax Japanese companies on criteria other than profits in order to replace existing local government taxes would be included in a tax reform blueprint which Mr Koizumi will take to Canada with him.

Currently, corporate taxes are calculated on profits alone. However, with two-thirds of Japanese companies making a loss, revenue collected from the business sector is far from substantial.

This announcement prompted the Opposition Liberal Democratic Party to warn on Wednesday that they will oppose any efforts in levy a tax on factors such as the number of employees a firm has, or the size of its capital, arguing that such a move will hamper the country's small and medium-sized enterprises.

'The pro forma taxation system will not only negatively affect employment and research and development activities, but will also create tax increases beyond the capacity of most small and midsize businesses to shoulder,' LDP lawmakers warned.

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