(Tokyo Shimbun: December 11, 2015 – p. 5)
Points of difference emerged within the ruling parties as they moved to finalize a taxation reform outline. The internal fight underscored that taxpayers’ money was being used as a trade-off for their cooperation in the election. Should the taxation system, the bedrock of the nation, be decided at the mercy of party interests?
During closed-door talks, the Liberal Democratic Party and the Komeito Party considered taxes as personal money that comes out of their own pockets. The discussions took place without the presence of the people.
The LDP had argued that a lower tax rate should only be applied to fresh foods, while the Komeito had sought to subject all processed and fresh foods to this preferential rate. Their secretaries-general held a number of talks, even when they were in China, to iron out the differences.
Negotiations continued while the LDP and the Komeito each demanded a tax reduction not to exceed 600 billion yen and 800 billion yen, respectively. But in the end, the LDP conceded to the Komeito’s proposal as it came under pressure from members who called for prioritizing winning support from the coalition partner during next summer’s House of Councillors election.
Expanding items exempted from the introduction of a 10% sales tax is expected to help ease the consumers’ pain, but does the way the ruling parties handled discussions make sense? One reason, pointed by a private taxation research commission, is that the taxation system is designed by politicians and policymakers to facilitate their collecting money from the people.
Prime Minister Shinzo Abe calls for creating a “virtuous cycle of growth and redistribution,” but the taxation reform outline does not include a measure to redistribute wealth from the well-to-do to the weak.
The lowering of the effective corporate tax rate and other taxation reform proposals are always crafted to favor businesses and the wealthy. The taxation system was originally designed to redress income disparities through the redistribution of wealth and assets, in addition to collecting money for state coffers.
The effective corporate tax rate will be cut to 29.97% in fiscal 2016 from about 37% in fiscal 2013 at the urging of industry. Special tax breaks have already been granted under the corporate tax scheme, with the result that taxable amounts are only 30% of what they were originally. Most of these tax-reduction policies have ended their role as the industrial structure underwent drastic change.
If the government lowers the effective corporate tax rate, it needs to look for financial sources by thoroughly reviewing the special tax breaks. The lower corporate tax rate is expected to help attract foreign businesses, but this is based on an optimistic outlook. Regulations and the size of demand top the list of criteria that companies consider when they decide to make investments, not tax rates.
This year a reduced tax rate dominated tax reform discussions. The reform of income taxes and other changes were put on the back burner. The government should reconsider the practice of cramming year-end taxation reform talks into a short period of time. To build a public-endorsed taxation system, detailed discussions need to be conducted in an open fashion. (Abridged)