諮問・答申・報告書等
Part I. Basic Policy
1. Establishing a Desirable Tax System for Vitalizing the Socioeconomy
At the beginning of this 21st century, the Japanese socioeconomy is
experiencing radical changes including the falling birthrate, aging population,
diverse lifestyles, globalization, computerization, growing stock economy, and
people's increasing awareness of environmental issues such as global warming. In
particular, the falling birthrate and aging population have continued at a rate
faster than expected. According to a newest estimate of population, the
birthrate will still continue to fall. As a result, the Japanese population will
reach the peak in 2006 and then begin to decrease. The number of working people
is also expected to continue to decrease in the future. Amid rapidly developing
computerization and globalization, companies have to compete worldwide.
An increasing number of Japanese people are anxious about the future of the
socioeconomy. Unless Japan can successfully cope with its structural changes,
the nation would not be able to revitalize its economy and remain sluggish for a
long time to come amid the falling birthrate, aging population, and decrease in
the number of working people. In order to keep the socioeconomy vital and
sustainable, Japan is urged to accomplish a broad range of structural reforms,
including legal system reforms. Tax reform is also a part of such structural and
legal system reforms. The Japanese government needs to show its people a clear
picture of medium- and long-term structural reforms and go down the road. These
efforts alone will win people's support to the government and restore people's
confidence and will to revitalize socioeconomy.
2. Viewpoints for Establishing a Desirable Tax System
In discussing an appropriate tax system for a vital socioeconomy, principles
of ''fairness, neutrality, and simplicity of taxation'' (see the appendix) shall
continue to remain the key. In particular, given the situation of Japan
discussed above, the following four standpoints should be taken into account.
1) Tax System That Allows Free Economic Activities - Efficient distribution of
resources and well-targeted policies -
Through high-economic growth (1060s and 70s), Japan formed a uniformed
socioeconomy where the government policy-led measures played an important role.
Taxation was no exception. Special taxation measures to advance particular
policies have been taken. However, market economy has penetrated worldwide in
the 21st century and people's sense of value has become diverse in the
socioeconomy. Efficient distribution of resources through the market led by the
private sector must be realized more thoroughly than before. An appropriate tax
system must be fair and neutral in economic activities and support the freedom
of individuals and corporations as well. Based on these standpoints, the
Japanese government should rationalize and streamline existing special taxation
measures should be concentrated only in truly effective areas.
2) Proper and Simplified Taxation - Gaining Public Support and Promote
Participation of General Public in the Society-
If our tax system fails to cope with structural changes, such as the falling
birthrate and aging population, and is unable to correct the existing tax
measures that cause unfair burdens of taxes and feelings of unfairness, Japan
could gradually lose its social vitality because taxpayers feel discouraged to
pay tax according to the unfair tax system. Thus, the government needs to
correct such unfair tax measures from the standpoint that everyone should bear
common social costs fairly.
In addition, appropriate taxation should include not only aspects in tax
legislation but also aspects in tax enforcement in order to gain taxpayers'
trust in tax system. In other words, a simplified tax system for taxpayers needs
to be instituted. A simplified tax system can improve predictability of tax
consequence of economic activities and contribute to the vitalization of the
socioeconomy through lower tax compliance costs.
3)Achieving A Stable Revenue Structure - Establishing a sustainable financial
base and eliminating people's anxiety for the future-
It is important to build a stable structure of the government's revenues in
order to make the socioeconomy vital and sustainable. The Japanese government
and local governments together have huge long-term outstanding debts (which are
expected to reach ?693 trillion for FY 2002, accounting for 140% of GDP).
What is worse, such debts are still expected to continue to accumulate in the
coming years. Naturally, the coming generations will be burdened with the debts.
Even if the government succeeds in reforming the present social security system,
the falling birthrate and aging population will bring about increase in payments
for pensions and medical care benefits. The government's budget for FY 2002
expenditures totals ?81 trillion while the tax revenue for FY 2002 stands
only ?47 trillion. The ratio of tax and social security to National Income
(national burden ratio) is lowest among major countries. In other words, taxes
collected by the Japanese government are insufficient to fulfill the role that
taxes must bear all of the common social costs (revenue raising function of tax
system).
A growing number of Japanese are worrying about the continued imbalance of
the government budget and have become anxious about the future. In order to
dispel the uneasiness and restore vitality in the socioeconomy, it is important
to build a stable revenue structure, which can afford necessary public services.
The Japanese government is urged to attain the primary balance in pursuit of
sustainable finance at earliest in the beginning of the 21st century. To this
end, rigorous cuts in government expenditures are essential. Raising taxes is
also inevitable.
Since the present Japanese economy is unfavorable, raising taxes is unlikely
to come up as the urgent agenda. However, the ongoing examinations for tax
reform must, at least, be compatible with these directions. Even if the
government is going to introduce tax reduction in a truly effective manner to
vitalize the nation's economy, on the other hand, it should be coupled with a
concrete tax increase program so that the government's financial condition won't
be deteriorated any more.
4) Local Taxation to Meet Needs of Enhanced Local Autonomy
Local taxes must be borne by people in the community according to their
capacity to pay tax and benefits received in order to bear costs of
administrative services provided by local governments. Thus it is desirable to
share the burden thinly and broadly by inhabitants for benefits they enjoy. And
revenues from local taxes should be stable. In addition, it is also important to
institute a tax system where tax autonomy of local governments can be exercised
easily.
The present local taxation has a wide gap with reality throughout Japan.
Expenditures and tax revenues of local governments are imbalanced. In addition,
the ratio of individuals and corporations that pay no taxes accounts for a
considerable percentage, which hurts benefit principle in local taxation. In
particular, tax revenues of prefectural and municipality governments are quite
unstable.
Under the circumstances, Japan is urged to promote decentralization as an
important pillar of structural reform, to institute a self-supporting relation
between the central government and local governments, and to realize vital and
characteristic local societies. In order to help the formation of
self-supportive local governments, effectiveness in local public finance and
administration should be improved through mergers of local governments, and
discontinuance and reduction of the central government's involvement in
expenditures of local governments. Further, on condition of this, revenue base
of local governments should be more self-supportive so that at their discretion
and responsibility, and based on understanding by local taxpayers of the
relationship between benefits and burdens of local administration through
disclosure of local administrative information, local governments can provide
people in the community with administrative services that meet local needs.
To this end, it is increasingly important for local governments to secure
and consolidate local taxes from the standpoint of building a tax system that
accompanies impartial and stable tax revenue sources of local governments.
3. Basic Design for a Desirable Tax System
From the standpoints of sharing the tax burden ''thinly and broadly'', the
Japanese government has introduced consumption tax, relief of progressive
taxation at individual incomes, and reduction of corporation tax since the
comprehensive tax reform measures were legislated in 1987 and 1988. When
considering an appropriate tax system from the standpoints mentioned above, the
main points of tax reform for the future should include the following:
The present individual income tax is at a quite low level as the result of
past tax reduction measures. Thus, the individual income tax must restore its
function as main tax. At the same time, exemptions and deductions must be
revised in order to meet changes of the socioeconomy.
Corporation tax shall be based on a neutral tax system that ensures free
activities of corporations amid ongoing globalization of economy. At the same
time, the government should target and prioritize special taxation measures only
at truly effective measures for the vitalization of the socioeconomy, while
rationalizing and streamlining existing special taxation measures.
Consumption tax needs to play a greater role in the future when considering
fairness between generations and vitality in the socioeconomy. Specifically, its
scheme should be rationalized to gain the trust in the tax from people and its
tax rate should be reviewed.
Inheritance tax and gift tax should be reviewed by lowering the top rate
while broadening the taxation base in considering the function of redistributing
wealth and ongoing falling birthrate, aging population, and expansion of stock
economy. In addition, inheritance tax and gift tax should be consolidated in
order to promote smooth passage of gifts from living parents to their children.
Concerning the reform of local taxes, as a part of measures to improve the
role of local taxes, and by taking into account of the review of roles and
responsibilities of national and local governments, fundamental review of
allocation of tax revenue sources - including transfer of taxation base from
national government to local governments- should be conducted. The review should
be conducted together with rationalization and streamlining of national subsidy
and national contribution as well as review of effect of guaranteeing finance of
local governments in local allocation tax (central government tax revenues
allocated to local governments). Further, in conducting such review, impact of
the changes on financial conditions of national government and individual local
governments need to be considered when the revision is enforced. In addition,
levels of tax burdens of national and local governments need to be reexamined.
In order to ensure benefit principle to local taxes, a number of measures
could be considered, including revisions of exemptions and per-capita tax rates
of individual inhabitant tax, introduction of taxation of enterprise tax by size
of business of corporations, stabilizing and securing property tax, tax autonomy
of local governments, etc.
By implementing the above-mentioned measures steadily, while ensuring an
appropriate balance among income, consumption and property tax basis,
establishing a desirable tax system of the 21st Century under which costs of the
society is shared fairly and broadly, and through which, achieving sustainable
vitalization of the socioeconomy.
Part II Reforms of Various Items of Tax
1. Taxation of Individual Income
1) Present Situation and Challenges of Individual Income Tax - Restoring role as
main tax -
Japan's individual income taxation (national tax: income tax, local tax:
individual inhabitant tax) underwent several times of tax reductions. As a
result, Japan's tax burden levels (the ratio of tax revenue to the national
income, ratio of individual tax burden, etc.) are so low (limited scope of
taxpayers paying tax at low rate), compared to other major countries. Individual
income taxation is on the verge of losing the revenue raising function and the
income redistribution function that individual income taxation is expected to
play as main tax. In the review of the current individual income tax system, the
above-mentioned problems of ''hollowing out (shrinking tax base and revenue)''
must be corrected in order to restore the original functions as main tax. At the
same time, distorted distribution of tax burden, if any, amid the structural
changes of the socioeconomy, ie. falling birthrate, aging population, must be
corrected. In addition, ''feelings of bearing unfair tax burden'' that exist
persistently among people must be solved correctly.
In the process of instituting a desirable individual income tax system,
discussing increase in tax burden is unavoidable. In this case, a step-by-step
introduction is essential for taxpayers to bear slow increase in tax burden.
2) Directions of the Reform in the Future
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1) Basic Policy - Sharing burden fairly and broadly - |
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a. Exemptions and deductions
Examples that indicate ''hollowing out (shrinking tax base and revenue) of
Japan's individual income taxation'' are found in the ratio of non-taxpayers to
the total number of workers and relatively high lowest tax threshold (lowest
taxable limit). Tax threshold is an accumulation of certain basic exemptions.
The limit is the index to distinguish taxpayers from non-taxpayers and will
affect the taxable income amount of all taxpayers. Beside the tax rate, taxable
income is the most essential element affecting tax burden, revising exemptions
is extremely important under the philosophy that ''sharing expenses of the
society fairly and broadly.'' The following three points will be important
standpoints in revising exemptions.
| A |
. A variety of exemptions for
income tax and individual inhabitant tax have been introduced in response to
changes of living conditions including marriage, nursery, and old age. It is
true that considering the circumstance of individual taxpayers is an
important character of income tax and individual inhabitant tax. However,
since various kinds of living ''infrastructure'' including social security
have been implemented to a quite satisfactory level, it is appropriate to
simplify and consolidate income tax and individual inhabitant tax. |
| B |
. Instituting a neutral tax system
is also quite important in order to avoid distorted sharing of tax burden
among taxpayers and interference of free choices made by individuals in the socioeconomy amid ongoing structural changes,
including the expanding gender-equal society, changes in employment practice,
falling birthrate and aging population. |
| C |
. Along with increase in aging
population, reduction of the taxation base will be accelerated due to
deduction for pubic pension, etc. To correct the ''hollowing out'' in the
taxation base, it will be necessary to revise exemptions in order to
consolidate the taxation base. |
b. Tax Rate Structure
Due to its reductions and simplification of bracket structure, Japan's
minimum and maximum tax rates are lower compared with those of major advanced
nations. In addition, the scope of income amounts where minimum tax rate is
applied (bracket) has been expanded. For example, approximately 80% of Japanese
taxpayers (employment income earners in the private sector) pay their income tax
at minimum tax rate (10%), which is exceptional among the major advanced
nations. In other words, the present income tax system in Japan allows most
taxpayers to pay income tax at a quite low tax rate. This has been brought about
by repeated alleviations of progressive taxation (flattening of tax bracket
structure).
Progressive taxation is rather flat with individual inhabitant tax than
income tax because the former asks burden according to the benefits that the
taxpayer enjoy. Approximately 60% of taxpayers in Japan pay individual
inhabitant tax at a minimum tax rate of 5%.
The progressive taxation was relaxed in the comprehensive tax reforms
legislated in 1987 and 1988 where the taxation base was expanded, by including
capital gains of securities, etc. into the tax base, but the tax rates were
generally lowered by considering giving incentives for work and business, and
stimulating the economy.
Further reduction of tax rates is inappropriate when the revenue raising
function and income redistribution function of income taxation are taken into
consideration. Rather, it will be an important option to cut back the bracket of
the present minimum tax rate (see the appendix).
c. Permanent Tax Reduction
So-called ''permanent tax reduction'' of income tax and individual
inhabitant tax has been implemented since 1999. The size of the reduction
amounts about ?4.1 trillion. Permanent tax reduction, especially the
''fixed rate tax reduction'' (about ?3.5 trillion), was given by paying
utmost consideration to economic situation, and thus, it should be repealed
while paying attention to economic conditions. |
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2) Reviewing Exemptions and Deductions |
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a. Exemptions for the Family Members
| A |
. Streamlining and integrating of
Personal Exemptions
| (a |
) A variety of personal
exemptions have been instituted in income tax and individual inhabitant
tax by considering the family structure and other living conditions of
individuals taxpayers. They are considered as reducing the ability to
pay tax. These exemptions, however, should be revised from the
standpoint mentioned in ''2(1)a exemption'' earlier and considering the
following points:
| a |
. A variety of
''infrastructures'' including social security and education have
been well arranged compared with those when exemption measures were
introduced for the first time. Meanwhile, because living conditions
of individuals are different, introducing exemptions to meet
individual conditions is naturally limited. In addition, Japanese
people are generally satisfied with plentiful living facilities
around them, and their senses of value on conditions for exemptions
are becoming diverse. |
| b |
. Past repeated premiums
and additional exemption measures have resulted in a greater
exemption for members of the family rather than the exemption for
the taxpayer oneself. The exemption system has also become too
complicated. |
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| (b |
) By implementing the
following concrete measures for an appropriate tax system, exemptions
should be simplified and consolidated into basic exemption, exemption
for spouse, and exemption for dependent.
| a |
. Specific dependant
exemption, exemption for aged dependent, and other additional
exemptions, and special exemptions such as exemption for working
student, for widow(er), and other special exemptions should be simplified
including discontinuance as much as possible. However, exemption for the
disabled, which needs real consideration, should be continued. |
| b |
. A tax mechanism on
special exemption for spouse has been introduced so that the
exemption for the head of the household is reduced according to
increase in the income of the spouse. This mechanism eliminates the
unintentional decrease of the net income after-tax pay of the
household, which is said the major cause of disincentive to work by
part-time workers. However, the mechanism is based on exemption for
spouse and special exemption for spouse, both of which are applied
to the head of the household. Thus, the mechanism creates imbalance
in exemptions for the head of the household and other dependent
members of the family. In addition, this mechanism is pointed out as
not neutral to social activities of men and women from the
standpoint for the formation of gender-equal society. Based on the
above-mentioned opinions and standpoints, it is advisable to
discontinue special exemption for spouse. In this case, the
above-mentioned unintentional decrease of net income after-tax pay
needs to be addressed. |
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| B |
. Further Revision of the Basic
Structure on Personal Exemptions
Further revision of the basic structure on personal exemptions, consisting
of the three exemptions (basic exemption, exemption for spouse, and exemption
for dependent), should be discussed and examined based on the following three
typical different opinions for nationwide discussions.
In this case, Opinion 2 or Opinion 3 supposes that exemption for spouse and
exemption for dependent are discontinued while basic exemption is upgraded and
expanded. |
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[Opinion 1: Personal exemption should consist of the following: basic
exemption, exemption for spouse, and exemption for dependent.]: |
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Opinion 1 pays
consideration to the purpose of the current personal exemptions,
namely consideration to diminishing tax-bearing capacity due to
support to dependents. The variation of this is to consolidating the
personnel exemptions into family exemption (tentative title) and basic
exemption in exchange of indiscriminating spouse from other dependent
family members. Further, from the standpoint for forming gender-equal
society, some members of the Tax Commission are of the opinion that
exemption for spouse itself be abolished. |
[Opinion 2: Exemption for spouse should be abolished and exemption for
dependent should be limited to children and aged family members only.] |
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Opinion 2 is
based on the idea that exemption, in principle, should consist of only
basic exemption of taxpayers themselves. Since the adult is supposed
to have a capacity to work and have income, no exemption for dependent
for the adult should be applied. Meanwhile, children and aged family
members are regarded as having scarce opportunities for work, they
should be included in exemption for dependent. This opinion
accompanies the problem that no consideration is paid to diminishing
ability to pay tax of a taxpayer and that a taxpayer is supposed to
pay a sharply increased tax when his or her dependent family member
reaches maturity age and no exemption for dependent is applied to the
taxpayer. |
[Opinion 3: Exemption for spouse and exemption for dependent should be
abolished while tax credit for supporting children should be
instituted.] |
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Opinion 3 adopts
the idea that exemption should consist of basic exemption of the
taxpayer alone while paying attention to supporting children in the
form of tax credit. Unlike income exemption, this measure will allow
the equal amount of tax benefit regardless of the amount of income of
a taxpayer (however, the measure do not benefit non-taxpayers). As
this opinion pays no consideration to diminishing tax-paying ability
caused by the support of dependents, it is unfamiliar to the Japanese
individual income tax system. In addition, since exemption and other
income exemption are instituted in mixture, the system will be more
complex. |
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b. Exemptions and Deductions for Elderly
At present, various measures have been introduced to elderly people,
including special additional exemptions for old-age person (provided that income
of a elderly taxpayer is ?10 million or less) and deduction for public
pension. Meanwhile, ''Revising the System of Specially Treating Aged Persons''
has come up as one of the subjects in the Broad Outline of Aged Society (Cabinet
Decision of December 2001).
Amid the falling birthrate and aging population, it is urgent to revise
exemptions for middle-aged and elderly persons and to ensure fairness between
elderly people and working people who support the social security system.
According to an OECD study, Japan's ratio of tax amounts to social security
benefits is extremely low. Thus, taxation at public pensions and benefits
according to the capacity of aged persons will contribute to adjustment of
actual benefit levels, resulting in fairness between generations as well as
among aged people.
Regardless of the fact that a taxpayer can deduct public pension premiums at
full amount in the form of deduction for social insurance premium, deduction for
public pension is given at the time of receiving pension benefits. In other
words, public pensions are virtually exempt from taxation at the stage of both
contribution and payment. In addition, both deduction for employment income and
deduction for public pension income are applied to those who have employment
income and public pension income.
From the standpoints mentioned above, requirements for exemption for elderly
should be revised so that the exemption is applied to the elderly truly in need
of it. Deduction for public pension is, in principle, supposed unnecessary
because deduction for social security premium is applied at the time of making
contribution. Meanwhile, as a minimum, from the standpoint of promoting fairness
among generations, the relationship between additional exemption and old-age
pension should be reviewed so that these exemptions can be reduced
substantially. Furthermore, the scope of deduction for social insurance premium
must be reviewed because the pension system has been diversified and a number of
contributions included in the scope are optional.
c. Deductions for Salary and Retirement Income
A. The total deduction for employment income or ?62.8 trillion accounted
for some 30% of the gross employment income of ?222.8 trillion (FY 2002
budget basis) at macro level. The ratio is regarded as quite high and not
legitimate as the standard deduction for expenses necessary for employment
income earners. Most of the major advanced nations are adopting a fixed amount
allowance as the standard deduction, or define the deduction limit. Compared
with these deductions, Japan's deduction is high and has a problem of having no
upper limit of deduction.
The Tax Commission has regarded that the characteristics of deduction of
employment income cover two elements, that is ''standard deduction of working
expenses'' and ''special consideration for the situation of employees, and make
adjustment to other types of income''. The number of employees accounted for
some 80% of the working people in 2001. Increasing number of workers are
selecting various types or work style. Under these circumstances, paying special
consideration to conditions of employees is becoming less necessary.
In conclusion, deduction for employment income should be reduced by seeking
for a reasonable level of standard deduction for working expenses.
Employees are of the view that business proprietors could manipulate their
income to reduce tax burden by attributing income to their corporation and that
their income is not monitored well. This view is leading to the feeling of
bearing unfair tax burdens among employees. Thus, in reducing deduction for
employment income, how to eliminate such feeling of inequity must also be taken
into consideration.
The deduction for specific expense has been instituted as the mechanism to
allow deduction of certain types of actual expenses incurred directly and
necessary for the working of the employee. However, applications of this system
are very limited. When deduction levels for employment income are lowered, an
increasing number of employed taxpayers are likely to choose the deduction for
specific expense in the future. Although the scope of the Japanese deduction for
specific expense is not narrow compared with the scope of major advanced
nations, the scope needs a renewed examination to meet changes in socioeconomic
conditions.
B. Payments of lump-sum retirement severance vary from corporation to
corporation. Nevertheless, deduction for retirement income is calculated simply
according to the number of years serving for the company. In addition, the
calculation of retirement income is not necessarily reasonable. For example, tax
is imposed on a half of employment income even if the number of years serving
for the company is short. In particular, when the number of years serving for
the company exceeds 20 years, deduction amount for retirement deduction
increases to ?700,000 per year from ?400,000 according to the present
retirement deduction system.
Employment patterns and practices in Japan have been changing in recent
years. Such changes include early retirement, job change, change in the method
of paying retirement severance and payment in the form of larger salary with no
retirement severance.
From the standpoint of ensuring fair and neutral taxation, taxation at
retirement severance should be revised by examining actual situations of working
conditions and retirement severances.
d. Exemptions/Deductions as Special Taxation Measures
Deductions for life insurance, non-life insurance, home loan, etc. have been
instituted in order to fulfill particular policy objectives. On the other hand,
however, they have distorted the tax system and create ''hollowing out''
(shrinking tax base and revenue) to some extent.
Since it is intended to conduct review on fundamental items of income tax
such as personal exemptions with a view to streamline and abolish from the
viewpoints of expanding income tax base, exemptions and deductions given as
special taxation measures should be examined more rigorously and reviewed with a
view to abolish them. |
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3) Individual Inhabitant Tax (local tax) |
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a. Basic Policy
Individual inhabitant tax is characterized as having proper features that
costs for the local community should be borne by as many local people as
possible according to their capacity and that local taxpayers can clearly
recognize the relation of burden-to-benefit for receiving social welfare and
other man-to-man services that the local government provides for local people
under the situation of the falling birthrate and aging population. Individual
inhabitant tax is also regarded as hardly having partial taxation sources and
therefore its tax revenue is stable. Thus, individual inhabitant tax should be
upgraded and consolidated as main local tax.
b. Taxation on Income Basis
Exemptions and tax threshold of local inhabitant tax should be set to a
level lower than income tax since as many local taxpayers as possible should
bear burden due to the recognition of the relation of burden-to-benefit in the
tax
c. Taxation on per capita basis
The per capita levy has been revised for several times so far. However, the
tax rate of capitation still remains low when compared with changes in national
income.
Thus, the gap of per capita levy and their level should be reduced and
revised according to brackets of population phase.
The non-taxation measure on the wife of a co-living taxpayer should also be
revised from the standpoint of individual-based taxation along with the
development of gender-equal society. |
2. Taxation of Corporations
1) Corporation Tax
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1) Present Situation and Challenges of Corporation tax - Revenue raising and
vitalization of socioeconomy -
Repeated reductions of corporation tax and falls of corporate revenues in
recent years have led to a drastic fall of corporation tax revenues. As a
result, corporation tax revenue now accounts for a little more than 20% of
national tax revenues. In addition, some 70% of corporations in Japan are
operating at a deficit.
However, corporate activities are increasingly expected to expand worldwide.
Under these circumstances and from the standpoint of vitalizing the socioeconomy,
reforming corporation tax has come up as a challenging subject while ensuring
the revenue raising function of corporation tax. |
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2) Directions of the Reform in the Future |
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a. Basic policies - Instituting a less-distorted and neutral tax system and
prioritize special taxation measures -
The corporation tax system should be compatible with international standards
as well as impartial and neutral for business activities in order to respect
inventive activities of corporations so that corporation can maintain and
strengthen their competitiveness.
From these standpoints, the Japanese corporation tax system has undergone a
number of reforms since FY 1998. For example, the corporation tax rate was
reduced to the internationally compatible level while the taxation base was
expanded. In addition, the consolidated tax payment system was introduced. These
corporation tax reforms must be strengthened and maintained in order to vitalize
the socioeconomy.
Meanwhile, Japan's corporation tax rate (national) is at the same level of
major advanced nations as a result of reductions of corporation tax rate.
Further reduction of corporation tax rate by taking into account of the levels
of corporation tax in developing countries is inappropriate.
Instead, the level of Japanese corporation tax rate should be examined and
revised by considering the level of entire tax burdens, the entire tax scheme
and the balance of tax rates of other advanced nations.
When taxation by the size of business is introduced into enterprise tax
(local tax) on corporation, the effective tax rate on corporate income will be
reduced.
Meanwhile, existing special taxation measures must be consolidated and
streamlined drastically in order to promote simplified taxation and expand the
taxation base. At the same time, truly effective measures must be implemented in
a targeted and prioritized fashion to reform and vitalize the socioeconomy. In
line with these reforms, problems on corporation tax must be worked on in
response to new moves in the socioeconomy, including emerging diverse business
operations.
b. Targeting of Tax Incentives - Prioritize tax incentives based on a clear
national strategy -
In order to strengthen the competitiveness of Japanese corporations and
reform the present industrial structure, Japan has to focus on important areas,
including regulatory reform and expenditure cut, based on a clear national
strategy in anticipation of industry and technology that will lead the 21st
century. In the area of tax system, on the one hand, rationalize and streamline
existing special tax measures, on the other hand, special tax measures must be
targeted and prioritized in the truly effective areas such as R&D.
c. Reappointing new socioeconomy Trends
Diverse investment forms have emerged along with globalization of economic
activities and financial deregulation. In line with these moves, business forms
and scales of corporation have changed. In society with a falling birthrate and
aging population, non-profit making activities by NPO corporations are expected
to play a greater role in building a vital socioeconomy.
In response to these new moves, the following subjects should be worked on
depending on the type of corporation (see the appendix):
| A |
. Taxation at retained earnings of
family corporations, taxation of partnerships and other different business
entities should be examined from the standpoint of ensuring appropriate
taxation and promoting smooth activities of corporations. |
| B |
. Taxation of non-profit making
corporations should be examined comprehensively. Specifically, taxation at
profit-earning business of corporations in public interest and reduced tax
rate of corporations in public interest and associations/cooperatives should
be examined by considering moves of reforms of corporations in public
interest. In addition, taxation at NPO
corporations, non-profit mutual benefit corporation and other new forms of
corporations should be examined. |
| C |
. Taxation of donation should be
examined by taking into account of tax treatment adopted in other countries
and the activities of non-profit making activities. Relations with various
systems, including the certified NPO
corporation system should be considered as well. Such examinations should be
made so that NPO corporations can have smooth operations as new leaders for the
public welfare. |
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2) Enterprise Tax (local tax) - Introduction of Taxation by the Size of Business
-
The introduction of assessment of enterprise tax of corporations by the size
of their business is an important reform for ensuring fair distribution of tax
burden, clarifying the characteristics of tax as a benefit-based taxation,
stabilizing main local tax that support decentralization, vitalizing the
Japanese economy, and promoting economic structural reforms. The introduction of
pro forma standard will come to correct ''hollowing out of taxation'' (shrinking
tax base and revenue) - or the problem that some 70% of corporations bear no
enterprise tax on corporation - and establish a corporation tax system where
profit-earning corporations will be treated in a more appropriate way. Pro forma
standard taxation of enterprise tax should be introduced at an early stage in
order to promote true decentralization by clarifying the relationship between
burden and benefit.
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