Japan’s ruling bloc OKs FY 2015 tax reform plan, favoring wealthy
TOKYO (Kyodo) — Japan’s ruling parties on Tuesday adopted fiscal 2015 tax reform policies entailing corporate tax cuts and an expansion of tax breaks for the wealthy, with an eye on propping up sluggish household spending and boosting business investment to aid the economic recovery.
By bolstering the profitability of big firms and promoting asset transfers from the elderly to the younger generation, Prime Minister Shinzo Abe hopes to strengthen his “Abenomics” policy mix and energize local economies across the nation.
But the reform plan, crafted by Abe’s Liberal Democratic Party and the Komeito party, does not contain drastic measures to support lower income earners and smaller companies, both dogged by price rises following the April consumption tax hike and the weaker yen.
Analysts say that the ruling camp’s latest tax reform proposals are unlikely to help narrow the income gap between people benefiting from Abe’s economic policies and those plagued by their side effects.
A series of bills for tax reform will be submitted to the ordinary parliamentary session scheduled for early next year.
Japan’s economy shrank for a second straight quarter through September in the wake of the 3-percentage-point consumption tax increase to 8 percent.
In addition, the deflation-busting “Abenomics” package, centering on aggressive monetary easing and massive fiscal spending, has undermined the yen’s value and pushed up import costs and domestic fuel prices, dealing a blow to resource-poor Japan.
“We put top priority on economic recovery” when compiling the new tax reform policies, Takeshi Noda, chairman of the LDP’s Research Commission on the Tax System, said at a press conference later Tuesday, expressing hope that expansion in the business sector will lead to wage growth and spur private spending.
In the tax reform plan for the fiscal year starting in April, the ruling coalition will slash Japan’s current 34.62 percent effective corporate income tax rate to 32.11 percent in fiscal 2015 and to 31.33 percent in fiscal 2016.
Noda said the amount of the tax reductions in the two years is expected to be more than 400 billion yen.
The LDP and Komeito, however, have failed to come up with stable financial resources to cover the tax cuts during the period, sparking fears about the outlook for Japan’s fiscal health — the worst among major industrialized economies.
The Japanese government has pledged to reduce the relatively high effective corporate tax rate by international standards to below 30 percent over the next several years.
To shore up private spending, the ruling parties will exempt from taxation in fiscal 2015 gifts of money from parents or grandparents to fund marriage, childbirth and child care of their offspring aged 20 and over.
The tax exemption, which will be applicable for gifts up to 10 million yen, is intended to tap the huge financial assets held by the elderly to stimulate economic growth, as Japan struggles with a rapidly aging population.
Elderly people are believed to own around 60 percent of financial assets held by individuals in Japan.
The existing tax benefits, including exemption from capital transfer tax for people donating funds for the education and home purchases of their children and grandchildren, will be extended.
As a step to galvanize regional economies, the ruling bloc will give tax breaks to firms relocating their headquarters to regional areas from Tokyo and other large cities.
In an attempt to prevent offshore tax avoidance, taxation on wealthy Japanese people living abroad will be reinforced.
The LDP and Komeito, meanwhile, did not clarify details of reductions in tax rates on daily necessities in their fiscal 2015 tax reform policies.
The two parties will begin full-fledged discussions next year about which items should be subject to the reduced tax rate in a bid to implement the tax system when the consumption tax rate is raised to 10 percent in April 2017.
Noda said the ruling camp will aim to map out a concrete plan for the taxation by the end of next autumn.
Komeito is keen to introduce the reduced tax rate to cushion the negative impact of the further tax hike on households, but Finance Ministry officials and some LDP lawmakers remain careful about how the envisioned tax system should be designed.
The opponents have argued that the new policy is set to decrease tax revenues, while creating too much paperwork for smaller companies.
