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Japan Enacts Funding Bills For Reconstruction

by Mary Swire,, Hong Kong

01 December 2011

Both houses of parliament have now approved the legislation which will provide the tax revenues to enable the Japanese government to service the special bonds that will finance the bulk of its JPY12.1 trillion (USD156.1bn) third reconstruction budget.

Parliament had already approved the required reconstruction programme, and its total cost over five years, in the areas affected by earthquake and tsunami in the north-east of Japan in March this year.

Following a recent political agreement to increase the term of the bonds from the originally-proposed 10 years to 25 years, which will allow the repayment of the bonds to be spread over a longer period, and therefore reduce the amount of annual revenue required for their repayment, the Japanese government was also able to count on the parliamentary support of the opposition parties for the passing of the enabling legislation.

Apart from funds to be obtained from the sale of public assets, which could include the government’s stake in Japan Tobacco, higher tax rates will begin from April next year.

From that date, the government will reduce the corporate tax rate, and then simultaneously increase it for a period of three years. The new corporate tax rate will, however, not be above the current rate, as the government is aware of the current effect of the weak domestic markets and higher yen exchange rate on Japanese businesses.

In addition, the tax increases will include, from January 2013, a rise in individual income tax rates, to be implemented for a period of 25 years. Confirmation of the dimension of the particular rate hikes that will be necessary will be announced shortly.

TAGS: tax | economics | business | fiscal policy | law | budget | corporation tax | legislation | construction | individual income tax | Japan

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