(c) 2013, The Yomiuri Shimbun.
(c) 2013, The Yomiuri Shimbun.
A tax reform panel of the Liberal Democratic Party and New Komeito decided on the framework of a tax reform outline to promote capital investment, business restructuring and investment in venture businesses as practical measures of the government's growth strategy to be compiled this autumn.
The panel of the ruling coalition apparently aims to create a virtuous economic cycle in the economy to prop up companies that actively invest in enhancing their competitiveness.
The panel decided on the framework of the outline, which is designed specifically to promote the growth strategy, at a meeting on Thursday.
But it decided to postpone reducing the corporate tax rate, as well as a full-scale review of the automobile acquisition and weight taxes, until fiscal 2014 tax reforms are realized at the end of this year.
The government aims to help companies recover total capital investments to the ¥70 trillion level within three years.
The goal is premised on the idea that boosting firms' capital investment increases profits for companies that receive orders for facilities and equipment, as well as their partners, thus having a positive effect on the whole economy. A key component in this process is the tax credit for investment.
The government and the ruling coalition plan to offer preferential tax treatment for companies that adopt machinery and assembly lines with energy-saving or other advanced technology.
They will discuss measures to reduce the tax burden on companies by expanding the immediate write-off system for corporate tax; a system to allow companies to write off the entire amount of certain costs in one year of its accrual; and a system to allow companies to receive tax credits commensurate with the size of their investments. A special tax deduction measure for small and midsize companies is also being considered.
Companies that replace air conditioners and refrigerators to those that are free of chlorofluorocarbons, which contribute to global warming, would also receive a corporate tax break.
Also under discussion is lowering corporate and fixed asset taxes for quake resistance reinforcement measures by commercial facilities in densely populated areas, such as hotels and inns, as well as stations and elevated railroads of railway companies.
However, as the willingness of companies to invest has been lukewarm during the prolonged deflationary economy, there are believed to be only a small percentage of firms active in capital investment, according to a senior official of the Economy, Trade and Industry Ministry.
Measures to stimulate companies by tightening regulations on energy saving and earthquake-resistance safety measures will be also on the agenda.
With a number of industries facing intense competition, such as home electric appliances, the economy has significant structural problems. This situation has created an environment where companies find it difficult to secure profits. Under such circumstances, a mechanism to bolster strategic business restructuring to win in global competition has been incorporated into the tax reform plan.
Specifically being considered is a system to reduce corporate taxes for companies that are recognized by the government as sponsors of an effort by multiple companies to establish a joint venture through divestitures of specific operations of those companies based on legislation tenatively named the industrial competitiveness enhancement law.
Support for venture enterprises is another point to be reinforced. In the aftermath of the collapse of Lehman Brothers in 2008, investment in venture enterprises plunged to below ¥20 billion, less than 12.5 percent of what it was before the financial catastrophe. The investment amount has since recovered, but to no more than about ¥50 billion.
For venture enterprises that have started to take off, business expansion that allows them to secure a mass production structure and widen distribution would help lead to further growth. Accordingly, the tax reform plan is designed to create an environment where companies that finance venture enterprises seeking to expand through investment funds to improve funding liquidity would face lower corporate taxes.