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Gov’t mulling tapping special foreign exchange account to finance reduced tax program

  • 2016-01-14 15:00:00
  • , Nikkei
  • Translation

(Nikkei: January 14, 2016 – p. 4)


 The government has come up with the idea of using deposits in the foreign exchange fund special account to finance a reduced tax rate program that will be introduced along with the scheduled sales tax hike in April 2017. The recent weakening of the yen has helped fatten the account surplus to about 20 trillion yen. The measure is expected to be a temporary solution until the introduction of a tax invoice system to business operators, but the sales of dollar-denominated assets may spark a rise in the yen.


 The introduction of reduced tax rates on foodstuffs, excluding restaurant meals and liquor, requires a revenue source of about 1 trillion yen a year. Of that, 400 billion yen will be secured from shelving a plan to set a ceiling on medical and nursing care fees that low-income people pay on their own. How to source the remaining 600 billion yen is a central topic of discussion at the House of Representatives budget committee, which began deliberations on Jan. 8.


 The government is mulling a plan to sell dollar-denominated assets in the foreign exchange fund special account to finance the reduced tax rate program. It possesses most of the dollar-denominated assets in the form of U.S. government bonds. The options of converting earned interests into yen and partially selling U.S. government bonds are also being considered.


 The idea of tapping into the special account deposits is not permanent. The government is seeking to implement it only for several years from April 2017. From fiscal 2021, business operators will be required to issue tax invoices. It is estimated that they are pocketing about 500 billion yen a year by underestimating the amounts of sales tax they received. The government wants to eliminate these tax profits and shift to using them to finance the reduced tax rates down the road. (Abridged)

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