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Japan's Stimulus Package To Include Major New Tax Cuts

by Mary Swire,, Hong Kong

17 December 2008

Japanese Prime Minister Taro Aso has unveiled a new economic stimulus package worth around JPY23 trillion (USD256bn), which is set to include a number of economy-boosting tax reforms.

According to the Prime Minister, the package will encompass JPY10 trillion worth of fiscal measures, with strong emphasis placed on cutting taxes, helping businesses to grow and expand, creating more jobs and helping those who face losing their homes as a consequence of the global financial crisis.

The Japanese economy is now in the grip of a recession, having recorded negative growth for two consecutive quarters, and Aso plans to begin distributing the funds through the last tranche of 2008's budget, with the rest being budgeted into the first tranche of fiscal spending in 2009.

One of the Prime Minister's main concerns is to begin reforming the country's tax system, with several changes being made over the next few years, including:

  • Completely reforming the consumption tax rates for businesses by 2010;
  • Giving tax breaks for gains from stock sales and dividends an extension until 2011;
  • Giving tax exemptions to corporate foreign profits;
  • Cutting tax on corporate income of up to JPY8m to 18% from 22% for two years from April 2009 for the benefit of small firms.
  • Raising the threshold for the 10-year tax break for mortgage payers to JPY6m from the JPY1.6m currently in place;
  • Implementing a JPY10m deduction on taxable income made from real estate purchases in 2009 and 2010; and
  • Bringing in a short-term freeze on duties levied on environmentally friendly automobiles for 3 years from 2009.

Economists have warned, however, that with the economic situation worsening rapidly, the measures would have to implemented swiftly to have the desired stimulus effect.

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