UPDATE 1-Japan approves tax plan, focus shifts to budget

* Japan aims to compile next fiscal year’s budget by Dec 24

* Tax revenue likely below bond sales for third straight year

* Govt juggles need to cut spending with rising welfare costs

* Govt plans to tax the rich, cut corp taxes to spur growth
(Adds comments from cabinet ministers, details on tax revenue)

By Stanley White

TOKYO, Dec 16 (BestGrowthStock) – Japan’s government approved tax
guidelines for the next fiscal year on Thursday that would lower
the burden on companies and raise taxes on the wealthy to boost
job creation and fund welfare programmes.

The guidelines pave the way for the government to focus on
the budget for the fiscal year starting April 1, but economists
doubt the tax code changes will do much to achieve the
government’s goal of ending deflation.

For fiscal 2011/12, Prime Minister Naoto Kan reiterated on
Thursday his pledge to stick to a cap on new bond issuance of 44
trillion yen ($522 billion) and a spending target of 71 trillion
yen, excluding debt servicing costs.

The government will need to show fiscal restraint in the
budget it aims to compile by Dec. 24. Any wavering over spending
cuts could cast doubt over Kan’s management as he struggles with
low voter support and signs of revolt within his party.

“The fundamental principal behind our tax guidelines is that
Japan has to escape deflation because it has been a burden on the
economy for the past 20 years,” Finance Minister Yoshihiko Noda
told a press conference.

“It will require a lot of tough work to meet our spending and
debt targets for next fiscal year, but if we don’t then I haven’t
done my job as finance minister.”


More stories on Japan tax policy [ID:nTAXJP]

More stories on Japan’s economy [ID:nECONJP]


Tax revenue for fiscal 2011/12 is likely to be slightly more
than 40 trillion yen, deputy National Strategy Minister Tatsuo
Hirano said. That would mark the third consecutive year that
borrowing exceeds tax revenue and show how difficult it is to
restore the country’s public finances.

Japan will aim for tax revenues in excess of income from new
bond issuance in fiscal 2012/13, National Strategy Minister
Koichiro Gemba said. Additional tax hikes and deep spending cuts
are likely needed to achieve this goal due to rising pension and
healthcare costs, economists say.

Reform of the 5 percent sales tax will be the biggest theme
next year, Gemba also said, as the government lays the groundwork
for a tax hike. However, opposition from within the ruling
Democratic Party could be stiff for fear of alienating voters.

Passage of related bills for the tax guidelines is not
guaranteed because the Democratic Party-led government needs the
support of opposition lawmakers to pass them in a split

Following are highlights of the tax guidelines for 2011/2012:

— Lower the effective corporate tax rate of around 40
percent by 5 percentage points in an effort to increase firms’
competitiveness and discourage them from moving operations
overseas. This will result in a 1.5 trillion yen loss in tax

— Expand the corporate tax base by tightening rules on
depreciation and carrying financial losses over multiple fiscal
years, which will save the government 650 billion yen.

It is still uncertain how the government will make up for the
remaining revenue lost from the corporate tax cut.

— Lower the effective tax rate for small and medium-sized
enterprises by 3 percentage points to 19 percent. Also expand
temporary tax breaks for such firms by lowering their corporate
tax rate to 15 percent from 18 percent.

— Extend for two years a tax break that halves taxes on both
stock dividends and stock capital gains to 10 percent, since the
economy is in deflation and households hold a large volume of

The tax breaks have been in place since 2003 and were set to
expire at the end of next year.

— Allow firms that increase payrolls over a certain amount
to deduct as much as 10 percent from their tax bill to encourage
job creation. For smaller firms it would be up to 20 percent.

— Effectively raise taxes for the wealthy by capping
personal income tax exemptions. Scrap exemptions for families
with adult dependants, excluding the elderly and those with
disabilities, to fund other welfare programmes. This, and other
changes, would eventually raise tax revenues by 500 billion yen.

— The guidelines say the 5 percent sales tax is important in
order to pay for rising welfare costs and the government will
work with opposition parties to compile by the middle of next
year a comprehensive reform plan. This is a coded reference to a
sales tax hike. The tax plan also says the government would
consider earmarking sales tax revenues for welfare spending.

— Levy a new tax on CO2 emissions from fossil fuels from Oct.
1 next year. Taxes on primary fuel consumers such as power
utilities will rise gradually and then full tax rates will become
effective in April 2015, generating around 240 billion yen in

The tax is aimed at curbing use of high-carbon fuels to meet
the government’s goal of cutting CO2 emissions by 30 percent by
2030 compared with 1990 levels. The tax rate in April 2015 will
be 760 yen per kilolitre of crude (about 121 yen per barrel), 780
yen per tonne of liquefied natural gas and 670 yen per tonne of

For consumers, gasoline prices will likely rise by 0.76 yen
per litre (3 cents per gallon) from 132 yen per litre on average
currently. Power bills for households in Tokyo will likely rise
by about 30 yen from the current average of 6,222 yen per month.

The government will offer tax breaks for jet fuel and extend
a grace period to thermal coal for caustic soda makers and fuel
for low-carbon transport such as railways.
($1=84.23 Yen)
(Additional reporting by Risa Maeda; Editing by Michael Watson
and Edmund Klamann)

UPDATE 1-Japan approves tax plan, focus shifts to budget