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Tax Reforms Promised In Japan

By Mary Swire,, Hong Kong

26 December 2012

Revisions to Japan's tax policy are due to be completed during January, following the re-election of the country's Liberal Democratic Party, in coalition once again with New Komeito.

The policies will be decided by internal party tax panels rather than by the governmental Tax Commission, and Takeshi Noda, who heads the LDP's Tax System Research Commission, dismissed the governmental commission as "unnecessary" and controlled by bureaucrats. Although the LDP's own commission has in the past been criticised as lacking transparency, Mr Noda reassured the media that it does not do the bidding of special interests, and that it facilitates the formation of budgets by turning down requests from ministries and lawmakers.

The LDP commission held its first discussions on new reforms on December 21, with Prime Minister-elect Shinzo Abe in attendance. Mr Noda subsequently highlighted the need for discussions on taxation in relation to research and development.

Matters for the panel to consider include measures to ease the effect of planned sales tax increases, which were introduced by the previous government but which the LDP has agreed to maintain. Consumption tax will increase from its present rate of 5% to 8% in April 2014, then to 10% in October 2015, and suggestions include tax breaks on housing loans and car purchases, and lower sales tax rates for food. One area where there may be some disagreement within the coalition concerns an inheritance tax hike for the rich, which is supported by New Komeito.

Tax deductions for married full-time homemakers are also expected to be maintained. However, the Organization for Economic Cooperation and Development recently identified these deductions as a barrier for women's participation in the workplace, arguing in a new report that "the tax/benefit system provides financial incentives for dependent spouses to limit earnings and avoid paying income tax."

TAGS: tax | sales tax | fiscal policy | budget | Organisation for Economic Co-operation and Development (OECD) | tax reform | individual income tax | Japan

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