Posts Tagged ‘corporate tax’

The case for a higher consumption tax

Tuesday, November 4th, 2014

Big needs: Should daily necessities by exempt from the consumption tax?

Big needs: Should daily necessities by exempt from the consumption tax?

Right now the government is fretting over whether or not to raise the consumption tax to its planned level of 10 percent in October of next year. For a while it seemed like a sure thing, but the drop in demand that accompanied the most recent hike to 8 percent in April, coupled with less inflation than the administration and the Bank of Japan had hoped for, has put the plan into doubt. The fear is that another boost in the tax will send the economy into a recessionary tailspin.

Akira Sugawara, a high school teacher who has published an economics primer for businessmen, recently wrote a simple, easy-to-understand polemic in favor of raising the tax for the online version of the business magazine Toyo Keizai. In line with his mission to explain economic principles to people who don’t have a strong grasp of basics, Sugawara starts out by explaining what the consumption tax is supposed to do, rather than what it is actually doing.

Originally, the purpose of the tax was to bolster social security in the face of a rapidly aging society, and though so far revenues from the tax have been used to pay off Japan’s massive debt, Sugawara still thinks social security should be prioritized when discussing the consumption tax.

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Banks get tax cut and finally decide to pay up

Thursday, May 24th, 2012

League of Extraordinarily Happy Gentlemen: entrance to Tokyo Bankers Association

On May 15 several major banks announced they would start paying corporate taxes. Mizuho Corporate Bank said it would start paying this year, while Mizuho Bank, Mitsui Sumitomo Bank and Resona Holdings will start next year. According to the Asahi Shimbun, it will be the first time in 15 years that Mitsui Sumitomo will pay any taxes. For Resona, a consolidation of Daiwa Bank, Kinki Osaka Bank, Nara Bank and, later, Asahi Bank, it’s the first time in 18 years.

The Tokyo-Mitsubishi UFJ financial group started paying corporate taxes last year. Despite the Lehman Brothers-triggered recession, all these banks have been in the black since at latest 2006. However, by law they can carry over cumulative losses from previous years on their books. All the banks suffered huge losses in the 1990s due to bad loans. At its worst point, Mizuho was in the hole by as much as ¥5 trillion; Mitsui Sumitomo ¥2.7 trillion. The three top banks’ total profits for fiscal 2012 is estimated to be ¥1.9 trillion, a 35 percent increase over 2011, even though they don’t lend money any more. All these banks received government bailouts and Resona was actually nationalized for a while. Of the total ¥3.1 trillion that was injected into the banking system by the government, ¥2.3 trillion has been paid back, and it’s assumed that the rest will be reimbursed earlier than originally planned.

Until the cut that went into effect April 1, Japanese companies always complained that corporate tax rates were higher here than in other countries, but 70 percent of them never pay any, including listed companies that pay dividends. More than 80 percent of companies listed on the Tokyo Stock Exchange paid dividends last year. Moreover, before the Diet approved the 5 percent corporate tax reduction (from 40 to 35 percent for the biggest companies), the Japan Communist Party, which opposed any cuts to the corporate tax, revealed that “internal reserves” (naibu ryuho) of Japanese companies amounted to ¥266 trillion. At any rate, the special taxes enacted to pay for reconstruction have reduced the cut slightly, but companies still have a smaller rate than they did last year.

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