June 10, 2012
The Japanese Communist Party argues that an increase in the consumption tax rate will end up in a loss in total tax revenues.
Compared to FY 1996 when the rate was still 3%, revenues from the consumption tax increased from 7.6 trillion yen to 12.7 trillion yen in 2010. However, looking at total tax revenues, the 5% rate was accompanied by a decrease of 14 trillion yen in total tax revenues from 90.3 trillion yen to 76.2 trillion.
The raise in the consumption tax rate obviously cooled down the economy because the loss in revenues from corporate taxes and income tax exceeded the increase in consumption tax revenues.
The Japan Chain Store Association in its request submitted to the Ministry of Economy states that a consumption tax hike could inhibit corporate growth which would hinder recovery from the presently stagnant economy.
The annual income of workers in the private sector is 550,000 yen less than that in 1997. An increase in the consumption tax at a time like this will further dampen consumer spending which undoubtedly will have a negative effect on the Japanese economy as a whole. As a result, Japan will suffer a loss in total tax revenues and continue to be in the red.
Improper taxation
Half of the national finance now depends on the issuance of government bonds. In other words, tax revenues are insufficient to cover even half of the national budget. To find a way out of this situation, it is essential to boost tax revenues, but not from relying on the consumption tax.
Under the present rules, for those who earn more than 100 million yen a year, the more they earn, the less they pay in income tax. The largest factor contributing to this phenomenon is the preferential securities tax measure. Many high-income earners earn more money from stock deals than from their salaries.
The original tax law requires stock beneficiaries to pay 20% on their capital gains. At present, however, the preferential securities taxation discounts the rate to 10%, which amounted to approximately 6.04 trillion yen in tax breaks during the period between 2003 and 2011.
The chairman of Ferrari in Italy says that the rich should pay more taxes and that asking the middle class to pay more is “scandalous”.
Have large firms pay fair share
While calling for a consumption tax hike to 10%, the government plans to reduce the rate of corporate tax from 30% to 25.5% in 2015. Although tax rates in principle must be determined based on payers’ ability to pay, the rates are actually lower for larger companies.
Large business entities pay less than 30% due to a series of preferential taxation policies exclusively designed for them, including tax breaks for stock dividends and a consolidated tax program. For instance, from 2003 to 2010, the average corporate tax rate for Sumitomo Chemical Co., chaired by Japan Business Federation Chair Yonekura Hiromasa, was 17.2%. Mitsubishi Corporation paid only 12.1%.
These programs also apply to small- and medium-sized enterprises, but their effectiveness is much greater for major firms since the amount of their tax assessments is larger. The average corporate tax rate for major corporations with a capital of 1 billion yen is 19.6%, lower than the 23% for companies with a capital of less than 10 million yen. By revising the preferential tax system, 1.3 trillion to 1.6 trillion yen of additional tax revenues could be created.
Not only that, large corporations have an approximate total of 260 trillion yen in internal reserves. Bank of Japan Governor Shirakawa Masaaki once said, “Major corporations have abundant capital reserves. The problem is that they do not have anywhere at present to use them.” Fiscal conditions and the economy overall can be restored by requiring major corporations to pay their proper share in taxes and return part of their internal reserves to the society in forms of more job opportunities and fair subcontract unit prices.
Compared to FY 1996 when the rate was still 3%, revenues from the consumption tax increased from 7.6 trillion yen to 12.7 trillion yen in 2010. However, looking at total tax revenues, the 5% rate was accompanied by a decrease of 14 trillion yen in total tax revenues from 90.3 trillion yen to 76.2 trillion.
The raise in the consumption tax rate obviously cooled down the economy because the loss in revenues from corporate taxes and income tax exceeded the increase in consumption tax revenues.
The Japan Chain Store Association in its request submitted to the Ministry of Economy states that a consumption tax hike could inhibit corporate growth which would hinder recovery from the presently stagnant economy.
The annual income of workers in the private sector is 550,000 yen less than that in 1997. An increase in the consumption tax at a time like this will further dampen consumer spending which undoubtedly will have a negative effect on the Japanese economy as a whole. As a result, Japan will suffer a loss in total tax revenues and continue to be in the red.
Improper taxation
Half of the national finance now depends on the issuance of government bonds. In other words, tax revenues are insufficient to cover even half of the national budget. To find a way out of this situation, it is essential to boost tax revenues, but not from relying on the consumption tax.
Under the present rules, for those who earn more than 100 million yen a year, the more they earn, the less they pay in income tax. The largest factor contributing to this phenomenon is the preferential securities tax measure. Many high-income earners earn more money from stock deals than from their salaries.
The original tax law requires stock beneficiaries to pay 20% on their capital gains. At present, however, the preferential securities taxation discounts the rate to 10%, which amounted to approximately 6.04 trillion yen in tax breaks during the period between 2003 and 2011.
The chairman of Ferrari in Italy says that the rich should pay more taxes and that asking the middle class to pay more is “scandalous”.
Have large firms pay fair share
While calling for a consumption tax hike to 10%, the government plans to reduce the rate of corporate tax from 30% to 25.5% in 2015. Although tax rates in principle must be determined based on payers’ ability to pay, the rates are actually lower for larger companies.
Large business entities pay less than 30% due to a series of preferential taxation policies exclusively designed for them, including tax breaks for stock dividends and a consolidated tax program. For instance, from 2003 to 2010, the average corporate tax rate for Sumitomo Chemical Co., chaired by Japan Business Federation Chair Yonekura Hiromasa, was 17.2%. Mitsubishi Corporation paid only 12.1%.
These programs also apply to small- and medium-sized enterprises, but their effectiveness is much greater for major firms since the amount of their tax assessments is larger. The average corporate tax rate for major corporations with a capital of 1 billion yen is 19.6%, lower than the 23% for companies with a capital of less than 10 million yen. By revising the preferential tax system, 1.3 trillion to 1.6 trillion yen of additional tax revenues could be created.
Not only that, large corporations have an approximate total of 260 trillion yen in internal reserves. Bank of Japan Governor Shirakawa Masaaki once said, “Major corporations have abundant capital reserves. The problem is that they do not have anywhere at present to use them.” Fiscal conditions and the economy overall can be restored by requiring major corporations to pay their proper share in taxes and return part of their internal reserves to the society in forms of more job opportunities and fair subcontract unit prices.
