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Japan Agrees 2016 Tax Package

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

17 December 2015


The two members of Japan's ruling coalition, the Liberal Democratic Party and the Komeito Party, have agreed to a budgetary tax package that provides tax rate cuts for companies in the 2016 fiscal year (FY) and tax relief for lower-income individuals in 2017.

Japan's corporate tax rate is to be reduced further than expected, as part of an effort to boost business investment and productivity. While the rate had previously been scheduled to fall to 31.33 percent in FY2016, the budgetary package includes a deeper tax cut to establish a tax rate of 29.97 percent in FY2016. This would be cut further to 29.74 percent in FY2018.

In addition, the ruling coalition has now agreed on the range of products that will continue to be subject to the current eight percent consumption tax rate when the headline rate increases to 10 percent in April 2017.

The lower rate will be retained for all fresh and processed food and for beverages, with the exception of alcoholic drinks. Food and beverages consumed in restaurants will be subject to the 10 percent rate, but takeaways and food delivered to the consumer will remain taxed at eight percent.

The package also includes a new simplified car tax framework based on fuel efficiency, to replace the country's vehicle acquisition tax. More cars are expected to be taxed at lower rates under the new scheme.

The new tax will be introduced at the same time as the consumption tax rate hike from April 2017. It will be payable on a vehicle's purchase price, but vehicles achieving a fuel efficiency of 10 percent more than 2020 fuel economy standards will be exempt.

Compared with the vehicle acquisition tax, the new system will be simpler, reducing the number of different rates from five to three. The lowest rate, of one percent, will be imposed on vehicles meeting 2020 fuel economy standards, and the highest rate of three percent (as is presently the case) will be charged on the least efficient cars.

Finally, lawmakers intend to provide a 50 percent three-year fixed asset tax break to businesses on new purchases of machinery and equipment. This is expected to be of particular help to small businesses that may not be in a position to benefit from the corporate rate tax cuts.

Japanese lawmakers are due to consider the budgetary package next month.

TAGS: individuals | tax | investment | small business | business | value added tax (VAT) | sales tax | property tax | vehicle tax | budget | corporation tax | food | tax rates | Japan | business investment

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