According to The Nikkei Asian Review today, Japan's ruling party is considering giving small and midsize businesses a 50% tax break for three years on purchases of production equipment, hoping to stimulate capital investment.
A company capitalized at up to 100 million yen (US$808,340) would pay just half of the annual 1.4% fixed-asset tax on procured equipment costing at least 1.6 million yen apiece, including manufacturing and power generation machinery. Such items account for around 90% of capital investment by some 2.5 million small and midsize companies in Japan, with the purchases reaching 1.04 trillion yen in fiscal 2014.
The ruling Liberal Democratic Party's tax panel will incorporate the proposal by the economy and internal affairs ministries into a reform outline to be compiled Thursday. The change will be implemented under new legislation aimed at boosting the productivity of smaller businesses.
Purchases made between fiscal 2016 and fiscal 2018 would receive the 50% tax break for the following three years. Hundreds of thousands of smaller companies in Japan are expected to benefit, with tax savings seen totaling an annual 10 billion yen or so.
To qualify, the equipment will have to improve output per hour or energy efficiency by at least 1%. The idea is to encourage businesses to increase production efficiency and save energy.
Japan is also planning to cut the effective corporate tax rate below 30% next fiscal year. Since only companies that turn profits pay corporate taxes, that reduction will not help the money-losing businesses that constitute nearly 70% of all small and midsize enterprises in Japan. The government and ruling coalition hope the additional step will help small businesses in regional cities.
"If we give tax cuts on [newly purchased equipment,] even loss-making companies will benefit from capital investment," said Akira Amari, state minister for economic and fiscal policy, told reporters here Sunday.
China, South Korea, and such European counties as the U.K. and France do not levy fixed-asset taxes on company equipment. Japan is trying to move toward the more internationally common practice of not taxing assets that depreciate.
Prime Minister Shinzo Abe has set a goal of lifting Japan's gross domestic product to 600 trillion yen through expanded capital spending and wage increases. Lifting lagging regional economies is deemed crucial to reaching that target.
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