Koizumi Proposes Retroactive Tax Cuts

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

17 June 2002

In a move which has been condemned by some as 'backpedalling', Japanese Prime Minister, Junichiro Koizumi announced moves to cut taxes for companies on research and development, and to reduce gift and inheritance tax levels in order to encourage the country's elderly savers to pass their wealth onto the younger generation, a move which it is hoped would stimulate the economy.

He also suggested that the measures, planned to be imposed early next year, could be made retroactive to January 1st.

Although there was still much wrangling still going on behind the scenes at the weekend over a second set of anti-deflationary measures, the Prime Minister's proposal - which represents a shift in policy towards quick cuts in order to bolster the ailing economy fast - will be welcomed by many.

Speaking to reporters on Thursday, the Prime Minister confirmed that: 'Some tax reform measures for fiscal 2003 can be implemented from Jan 1. I want such a step to be discussed as part of desirable tax reforms.'

In the short term, cutting taxes is likely to boost Mr Koizumi's popularity, and the reductions can be financed by scaling-down some of the deductions already in place and avoiding any increase in government bond issues.

However, a CNN Asia report published last Friday quoted a senior Japanese tax expert as warning that the country risks becoming bankrupt as a nation in 10 years, unless taxes are increased.

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