Japan’s Leading Parties May Reach Agreement on Tax

March 11, 2011 Taxation in Japan

Naoto Kan - World Economic Forum Annual Meeting 2011Japan’s long running political stalemate over taxation issues is showing signs of progress, after the Liberal Democratic Party and the Democratic Party of Japan held talks regarding extensions for a number of soon to be expired tax breaks.

On March 11th a meeting was held between leaders of Japan’s major political parties, the ruling Democratic Party of Japan (DPJ) and the opposition Liberal Democratic Party (LDP), to discuss a number of tax breaks that are set to expire at the end of March. The meeting concluded with the LDP indicating a potential willingness to support the DPJ’s proposed short-term extensions to the tax breaks. Smaller opposition parties, the Japanese Communist Party and the Social Democratic Party, also indicated that they are considering cooperating with the DPJ on the proposal.

The meeting was focused on discussing the feasibility of granting a three months extension to 107 currently active tax breaks, such as a reduction in corporate taxes for small businesses, lower import duties on selected alcoholic items, and a cut in duties for property transactions. After the meeting the secretary-general of the ruling Democratic Party of Japan (DPJ) made a statement to the press, saying that his party had made its tax break extension offer to the LDP, and is now hoping for positive cooperation. Local political analysts are optimistic that the LDP intends to support at least some of the measures.

As reported earlier, Japan has seen continued debates between the two most prominent political parties about the issue of taxation. Prime Minister Naoto Kan and the DPJ has faced long-standing criticism from the LDP regarding a number of tax issues, such as sales tax increases and decreases to corporate tax rates. The prolonged disagreement has lead to speculation in Japan that if the Prime Minister does not find enough support for his upcoming budget, the country will be driven to a forced election. Analysts have suggested that any potential cooperation over tax issues at this point might be indicative of a higher level of constructive discussion between the parties in the near future.

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