On 24 August 2010 the Japanese Ministry of Economics and Industry (METI) commented on their hoped for tax reforms of 2011. This follows their consultation with industry bodies in July – schedule and documentation here (link in Japanese).
Areas for 2011 tax reform
METI hoped to see a reduction in the corporate tax rate, a continuation of the lowered rates of taxes applied to small and medium sized businesses, an emphasis on effective environmental taxation and increased attention to the imposition of taxes on fossil fuels. METI would also like to see a phased reduction in the corporate tax rate to that of other main countries, with an initial reduction of five percent.
Accordingly key items hoped for in the 2011 tax reform were:
- Steps to strengthen the competitiveness of Japanese industry in order to bring about economic growth and the preservation of employment.
- Encouragement of “Green Innovation” as a motor behind economic growth.
- A main pillar to any reforms being the encouragement of small and medium sized businesses in order to support local economies and employment.
Steps to bring about the first of the above items would include reduction in corporate tax rates, the promotion of corporate reorganization, the promotion of investment in research and development and making permanent certain reductions on import duties on source chemicals, namely naphtha (when used for the products made from fossilized fuels) and coal (when used in the production of iron, steel and cement)
In particular METI wanted to see a reduction in corporate tax rates to a level with other leading countries but at the same time widening the tax base to preserve the state of government finance. In relation to promoting research and development, METI would like to see an increase in the availability of tax credit for such expenditures from 20% to 30%.
Discussing strengthening taxation on oil and coal
Strengthening taxation on fossilized fuels in order to promote a more environmentally friendly tax system and prevent global warming was raised as a discussion item.
The promotion of a ”Green Tax System” would focus on equipment used for renewable energy or which achieved effective energy savings. In order to accelerate the adoption of renewable energy equipment this would include an increase in the scope of equipment that could apply a reduced rate of fixed asset tax. Taxation on fossil fuels would respond to an increasing demand for additional establishments that could help control or reduce carbon dioxide emissions.
Participants in the METI proposals for 2011 tax reform may be found here. The Japanese Petrochemical Association’s paper on the benefits of preserving the above reduced taxes on the import of naphtha is here (link in Japanese).