Tokyo Banks Hit Hard By Controversial Tax

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

05 June 2001

A three percent levy on the gross profits of large Tokyo banks has hit hard, the Nikkei announced on Saturday. The tax, which was the brainchild of Tokyo governor Shintaro Ishihara, has been causing controversy from its inception, and was violently opposed by banks and central authorities; twenty one of Japan's largest banks sued Tokyo last year, calling for the tax to be declared invalid, but a judgement has not yet been reached.

Estimates suggest that taxes for the year 2000 may have been up to 1.5 times greater than combined net profit, and for a sector already dogged by stagnant lending and the rising cost of dealing with defaulted loans, this could be problematic to say the least. According to the Nikkei, some eight banks, including the Mizuho Financial Group incurred a combined total tax bill of 80 billion yen last year, with the Mizuho group, which comprises three banks, suffering the largest payment of approximately 21.6 billion yen.

However, the tax was widely supported by Tokyo voters when it was introduced in April 2000, as they are said to resent the 7.26 trillion yen received by major banks from public funds in 1999 to help counter the risk of a financial system crisis. Analysts predicted that the three-percent tax, levied over five years, would pump around 110 billion yen per year into the Tokyo treasury, whose finances have been dented by the prolonged economic slump.

Recommended