Hatoyama Cabinet OKs FY 2010 tax reform plans+

TOKYO, Dec. 22 Kyodo -
Prime Minister Yukio Hatoyama's Cabinet approved Tuesday an outline of tax
reforms, making headway toward its goal of finishing in December the drafting
process for the fiscal 2010 budget.

The reforms to be implemented from the fiscal year starting in April will
likely lead to a fall of about 10 billion yen in receipts for the central and
local governments in fiscal 2010 but a tax increase of 1 trillion yen after
that when all effects are taken into account, members of the panel said.
''I believe I can win public acceptance,'' Hatoyama told reporters shortly
after the approval, in reference to some of the upcoming increases in
taxpayers' burdens.
Due to fiscal shortfalls, Hatoyama backpedaled from some of his campaign
pledges made during the election in August, most notably the repeal of current
provisional surcharges on gasoline and automobile-related taxes.
Excluding a cut in part of the automobile weight tax, the government has
decided to maintain the same tax rates for a while, although it will abolish
the nation's longstanding provisional tax rate structure at the end of this
fiscal year.
The Democratic Party of Japan, which leads the three-party coalition
government, could not tolerate a projected combined loss of about 2.5 trillion
yen in revenues for the central and local governments if all of the provisional
tax rates are eliminated.
As for a new tax system aimed at fighting global warming, the outline said the
government will continue studying toward its introduction in fiscal 2011.
The DPJ has promised to scrap or reduce special tax breaks for some industries
that are now deemed unnecessary, which were implemented for many years during
the Liberal Democratic Party's time in power. But the DPJ also found it more
difficult to fend off vested interests than it had hoped.
By the end of fiscal 2013, the DPJ has pledged to generate more than 1 trillion
yen by reviewing the existing special tax incentives. But the DPJ-led
government has so far ended up only securing an increase of around 100 billion
yen in revenues at a national level from the modification.
The Tax Commission, which was in charge of preparing the outline, also decided
to raise the current tobacco tax by 3.5 yen per cigarette starting next Oct. 1.
With increases in sales prices and consumption tax to be associated with the
hike, a pack of 20 cigarettes will cost around 100 yen -- or 5 yen per
cigarette -- higher than now in Japan, members of the panel said.
Japan last raised the tax in fiscal 2006, when it was increased by 0.85 yen per
cigarette.
Currently, cigarettes in Japan usually sell for around 300 yen per pack of 20
with tax accounting for about 190 yen.
After the hike, DPJ lawmakers say they estimate annual tax revenues will
increase by around 160 billion yen from the present level.
Tobacco tax revenues are projected to total around 2 trillion yen in fiscal
2009, of which about 60 percent will be allocated to local governments.
Hatoyama and the health ministry were strongly in favor of raising the tax for
the purpose of promoting good health, while the Finance Ministry had second
thoughts about going ahead with a huge rise partly due to concern over a fall
in tax revenues in tandem with a decline in cigarette consumption.
Among other items, the government will scrap or reduce income tax deductions
for dependents largely because of the decision to provide child allowances
irrespective of income levels from fiscal 2010.
To stimulate the economy, the current gift tax exemption cap of 5 million yen
will be expanded to 15 million yen for home purchases and renovations in fiscal
2010.
But the government decided not to introduce a corporate tax cut for small and
midsize companies in the upcoming fiscal year.
The DPJ's platform for the coming four years said the party will lower the
current corporate tax rate for small and midsize companies to 11 percent from
18 percent on incomes of up to 8 million yen.
The DPJ transformed the commission into the sole-decision making body for tax
reforms, unlike the long-ruling LDP that had a two-tier tax panel system of the
government and ruling parties.
The transformation was one of the symbolic attempts of the DPJ-led government
to make the Cabinet play a central role in formulating polices, instead of
Japan's powerful bureaucracy or some ruling party lawmakers making arrangements
behind locked doors.
Hatoyama looked reasonably satisfied with the results obtained by the tax
panel, saying, ''Previous taxation systems have never been decided under the
leadership of politicians.''
The new government also broadcast the meetings of the panel live on the
Internet in an attempt to ensure transparency in policymaking.
However, questions remained about how much the entire decision-making process
was transparent, given that many of the final decisions faithfully reflected
last-minute requests from the DPJ rather than panel discussions since early
October.
Ichiro Ozawa, the powerful secretary general of the ruling party, asked
Hatoyama last week to review the abolition of the provisional tax rates and
some of other key pledges, citing budgetary constraints.
After gaining approval for the outline, the government will accelerate its
efforts to finalize the drafting process of the forthcoming fiscal year's
budget by the end of this week.
The budget draft is scheduled to be submitted to the upcoming ordinary Diet
session starting in January.
==Kyodo
2009-12-22 23:31:25