Japan Releases Annual Tax Guidelines

December 23, 2009 Taxation in Japan

Yukio Hatoyama, Japan's next leaderOn December 22nd, the Japanese Government revealed its tax reform plan for the fiscal year beginning April 1st, 2010.

The newly published tax guidelines are aimed at decreasing Japan’s public debt figure, which is currently at an approximated 180 percent of GDP. In order to achieve the goal, the tax plan will attempt to support Prime Minister Yukio Hatoyama’s earlier announced intentions of maintaining Japanese Government Bond issuance at JPY44 trillion (USD483 billion).

The most controversial announcement of the tax reform is replacing surcharges on gasoline sales with a tax charged at the same rate. The move comes contrary to Prime Minister Yukio Hatoyama’s election campaign where he promised to abolish the gasoline levy. The levy stands at approximately JPY25 per liter, though could be altered by the government to reflect any significant shifts in oil prices.

In order to increase economic growth, the Government has included several tax decreases in the released guidelines. Cash gifts of up to JPY 15 million will be tax-exempt in 2010, under the condition that they are used for housing purchases. However, the gift threshold will be reduced to JPY 10 million in 2011. Further, interest earned by foreign investors on Japanese corporate bonds issued by March 31st, 2013, will be tax-exempt. Automobile weight taxes will also be reduced.

The Japanese Government is offsetting the selection of tax decreases with several tax rises. From October 1st, 2010, tobacco taxes will be raised by JPY3.5 per cigarette. The Government will remain open to the possibility of a new environmental tax, which could be implemented in April 1st, 2011, if approved. Existing special deductions for families with high-school aged children will be reduced, and tax deductions for dependents under 15 years of age will be abolished.

Hirohisa Fujii, Japan’s Finance Minister, commenting on the Government’s tax plan and decision to cap bond issuance, said, “…the 44 trillion yen is a promise Prime Minister Hatoyama has made to the public in view of the current economic situation”. He went on to say that the steps taken could not be avoided as tax revenues have fallen during Japan’s deepest modern economic depression.

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