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ECONOMY > Economic Policy

Japan ruling bloc draws up tax reform plan to promote investment

  • December 12, 2019
  • , Kyodo News , 6:42 p.m.
  • English Press

TOKYO – Japan’s ruling coalition on Thursday compiled a tax reform package for fiscal 2020, focusing on measures that would help encourage business investment in advanced communications infrastructure and startups with innovative technologies.


The annual reform plan, to be submitted to the Diet early next year, is also aimed at supporting households, offering tax breaks for unmarried single parents raising children as well as those saving for old age at a time when the nation’s pension system is seen as inadequate to cover its aging population.


In a bid to encourage the spread of ultrafast 5G mobile networks, Prime Minister Shinzo Abe’s Liberal Democratic Party and its junior coalition partner Komeito party plan to give a 15 percent tax credit to companies that invest in network infrastructure, such as by building base stations.


Commercial 5G services, which can enable data transmission speeds that are around 100 times faster than the current 4G networks, will be commercially available next spring in Japan.

Major mobile carriers that bring forward their planned 5G network project schedules will be among those eligible for the tax break, as will smaller companies planning to set up “local 5G” networks within limited areas, such as at factories and farms.


In a related move, the government plans to submit a bill to the ordinary parliamentary session starting in January aimed at facilitating domestic telecom companies’ efforts to forge business ties with their U.S. and European peers free of national security concerns.


Japan is eager to promote the development and spread of 5G technologies and networks as the country lags behind others, including the United States and China.


In an attempt to nudge companies to use their accumulated cash reserves, the ruling bloc intends to give a tax break for investment in innovative startups.


The government specifically plans to let companies deduct from taxable income a certain amount — 25 percent of the investment — when big firms invest 100 million yen ($920,000) or more in such startups, and small and midsize firms invest at least 10 million yen.


Akira Amari, who heads the LDP’s tax commission, said at a news conference that with the tax reforms, the ruling parties aim to help Japanese companies respond to the changing global business environment.


“A win-win relationship can be achieved if (large) companies take in innovations while startups obtain funding,” Amari said.


Also, as part of the government’s push to encourage individuals to invest more and help increase their retirement savings, the ruling bloc has decided to review a small-lot, tax-advantaged investment program called Investment in the Nippon Individual Savings Account or NISA.


The ruling coalition plans to extend the installment-type NISA program by five years beyond 2037 when it was initially slated to end.


Under the reform package, single parents who have never been married and with an annual income below 5 million yen will also be given special tax deductions.


Currently, parents who are divorced or have had a spouse die qualify for the preferential tax treatment.


Conservative lawmakers, particularly those belonging to the LDP, have long been opposed to such a reform, claiming it would encourage people to have children outside of wedlock and destroy traditional family values.


With the number of foreign visitors to the country increasing, the ruling parties aim to see taxes withheld on winnings by nonresident foreigners at casino resorts to be introduced under Japan’s recently liberalized gambling laws.


The reform package also includes steps to allow selling of duty-free products such as cosmetics and watches via vending machines.

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