Tax commission considering 4-percent corporate tax hike

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A government panel is considering a 4-percent increase in corporate tax, along with temporary hikes in income tax, to help pay for reconstruction following the Great East Japan Earthquake, sources said.

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Tax commission considering 4-percent corporate tax hike
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A government panel is considering a 4-percent increase in corporate tax, along with temporary hikes in income tax, to help pay for reconstruction following the Great East Japan Earthquake, sources said.

The Tax Commission, tasked with finding additional revenue to pay for the 15.5 trillion yen ($198 billion) that officials believe it will cost to rebuild the Tohoku region over the next five years, is looking at various plans for increasing income tax over periods of between five to 15 years. Shorter term increases would mean higher income tax rates.

The government believes that about one-third of the 15.5 trillion yen needed can be obtained by reducing child allowances, selling central government stock holdings and dipping into surplus funds in the special account of the Fiscal Investment and Loan Program.

The remaining 10 trillion yen or so will have to be paid for by tax hikes.

The central government was planning to cut the corporate income tax rate by 5 percent from the next fiscal year from the combined 40.69 percent currently levied through national and local corporate taxes. Diet gridlock has delayed deliberations on the legislation needed to implement that tax cut.

Under the proposal being considered by the Tax Commission, the tax cut would go ahead from the next fiscal year but a temporary tax hike in the national corporate tax of about 4.2 percent would be implemented for a three-year period from fiscal 2012. The tax hike is expected to generate about 2 trillion yen in tax revenues over three years.

One proposal for hiking individual income tax calls for an across-the-board 10 percent hike. That proposal would lead to an expected annual increase in tax revenues of 1.4 trillion yen. If that tax hike was continued for five years, a total of about 7 trillion yen in tax revenues could be collected.

However, some members of the Tax Commission feel that would place too much of a burden on individual taxpayers. If tax increases were implemented over an extended period, the amount of additional tax revenue needed each year could be reduced.

A high-ranking member of the Tax Commission said: "If the implementation period is extended, the amount of increased income tax could be limited to several hundreds of yen a month."

The commission may present a number of different annual additional tax revenue figures for various periods of increases in their report to government.

Among the other proposals is an increase in tobacco tax by about 2 yen per cigarette.

The Tax Commission plans to present its report by the end of this week. The government and the ruling parties will first discuss the proposals and then hold consultations with the opposition.

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