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FY 2000 Tax Reform (Main Points)

(Provisional)

Ministry of Finance
19 December 1999

FY 2000 Tax Reform (Main Points)

 

        With a view to promoting full-scale economic recovery by taking the current economic situations into account, FY2000 Tax Reform will take measures outlined below including measures to promote private-sector investments, and measures to support small-and medium-sized enterprises (SMEs) and venture businesses. Likewise, in order to cope with socioeconomic changes, necessary measures will be taken with regard to taxation of the pension system, corporations and others. The special additional personal allowance for dependent children under 16 years old will be abolished.

 

(Note) The permanent tax reductions (national and local) for individuals and corporations, which substantially exceed ¥6 trillion and, which have been implemented since the FY99 tax reform, will continue in FY2000.

 


Promotion of Private Sector Investments

○ Tax credits for housing loans

- For houses to be inhabited during CY2000, (i) The ceiling on the qualified amount (year-end) of outstanding housing loans, (ii) deduction period and (iii) applicable deduction rates will be as follows:

[Currently]

Housing to be inhabited during CY2000

Housing to be inhabited during CY2001

(i) Deduction period

15 years

(i) Deduction period

6 years

(ii) Qualified amount (year-end) of outstanding housing loans

(iii) Applicable years and deduction rates

(ii) Qualified amount (year-end) of outstanding housing loans

(iii) Deduction rates

For loans of less than ¥50 million

1st – 6th years: 1%
7th –11th years: 0.75%
12th – 15th years: 0.5%

For loans of ¥20 million

1%

For loans of ¥20 to 30 million

0.5%

 

[FY2000 Tax Reform (planned)]

Housing to be inhabited during CY2000

Housing to be inhabited from January 1 to June 30, 2001

Housing to be inhabited from July 1 to December 31, 2001

(i) Deduction period

15 years

(Same as shown on the left)

 

(i) Deduction period : 6 years

(ii) Qualified amount (year-end) of outstanding housing loans

(iii) Applicable years and deduction rates

(ii) Qualified amount (year-end) of outstanding housing loans and (iii) deduction rates:
- For loans of less than ¥20 million: 1%
- For loans of ¥20-30 million: 0.5%

For loans of less than ¥50 million

1st – 6th years: 1%
7th –11th years: 0.75%
12th – 15th years: 0.5%

  • Full deduction of the acquisition costs of certain communication -and information- related equipment (ie. 100% deduction- during the accounting period of their acquisition- of the acquisition cost of certain equipment, including personal computers, with a value of less than ¥1Million) will continue to be applied until March 31, 2001.

  • Tax treatment for the promotion of investment by SMEs (SMEs may choose either depreciation of the acquisition costs at 30% of the value of machinery, devices and certain equipment, or a 7% tax credit) will continue to be applied until May 31, 2001.

  • Special tax treatment for improvement of the technological foundation of SMEs (the rate of tax credit for R&D expenses is increased to 10%) will continue to be applied for R&D expenses of the business years starting before March 31, 2001.

Support to SMEs and Venture Businesses

  • Special tax treatment on capital gain from stocks of specified SMEs

-

Introduction of special taxation of capital gains from stocks of specified SMEs (stocks eligible for the "Angel Taxation Scheme") by taxing only half the amount of such capital gains; provided that the stocks had been held for more than three years as of the date when the stockholding company was listed and were sold within a year of the date of listing (additional conditions apply).

-

Combined with the existing special measure for the capital gains of entrepreneurs (*1), tax on the capital gains from the sale of stocks of specified SMEs will be reduced to 1/4.

(*1) For capital gains from the sale of stocks which had been held for more than three years as of the date when the stockholding company was listed, and which have been transferred within a year of the date of listing, special taxation is applied under which only half the amount of taxable capital gains is taxed.

  • Special tax treatment on the retained income of family (closely-held) corporations

-

Special additional tax on retained income of family corporations will not be imposed (for two years) on (i) SMEs (*2) less than 10 years old and (ii) the authorized businesses under the Law for Facilitating the Creation of New Businesses.

(*2) SMEs refer to those stipulated under the said law.

-

Manufacturing: A company with capital of less than ¥300 million or a total of 300 employees or less

-

Wholesale: A company with capital of less than ¥100 million or a total of 100 employees or less

-

Service and retail: A company with capital of less than ¥50 million or a total of 100 (service)/50(retail) employees or less

(Note)
Rationalization on appraisal method of non-traded stocks (for the purpose of inheritance tax):

-

Review the adjustment rate for the appraisal of such stocks under the "comparison with similar businesses" method.

-

Review the criteria for the number of employees to examine the size of small corporations.

-

Allowing (optional) use of the "comparison with similar businesses" method for stocks of companies that lack two of the elements needed for the appraisal of non-traded stocks.
  

Taxation concerning the Pension System

  • Measures for taxation relating to the defined-contribution pension scheme.

    (1) Contributions

-

Company employees who are covered by existing occupational pension plans, ie. Employees' Pension Fund (Kosei Nenkin Kikin), Tax Qualified Plan (Tekikaku Taisyoku Nenkin):

- If corporation type defined contribution pension plans are implemented, the premium paid by the employer will be considered as expenses (tax deductible) and will not be taxed on the side of employees.
  

-

Company employees who are not covered by the existing occupational pension plans (see above) or newly introduced defined contribution pension plans or who are self employed:

- If individuals (ie. such employees and self employed) opt to join individual type defined contribution pension plans, the premium is tax deductible.

    (2) Fund earnings

-

he Special Corporation Tax on Pension Funds should be imposed on the premium paid by employers and its investment returns.

-

The Special Corporation Tax on Pension Funds should be imposed on the premium paid by individual beneficiaries and its investment returns.

(Note) The Special Corporation Tax on Pension Funds (1%) is currently suspended.

    (3) Benefits

-

Installment payments of old-age pension benefits: public pension benefit deduction is applicable.

-

Lump-sum payments of old-age pension benefits: taxed as retirement income.

    (4) Transfer of pension assets

-

Necessary measures should continue to be taken in order to ensure that a beneficiary can transfer his/her pension assets when he/she resigns from the company or switches to another company.

-

Necessary measures should be taken to ensure transfers from the defined-benefit pension plans to the defined-contribution plans.
  

(Memorandum Item) Outline of the defined-contribution pension plans

  • Scope of individuals who can join the defined contribution pension plans and the maximum amount of contributions ---

A. Employees of companies

Corporation type defined contribution pension plans
Contribution by employers only (within the maximum amount of contributions as below)

-

Where occupational pension plans (ie. Employees’ Pension Fund (Kosei Nenkin Kikin), Tax Qualified Plan (Tekikaku Taisyoku Nenkin) are NOT applied: ¥432,000/annum ( ¥36,000 per month)

-

Where occupational pension plans (see above) are applied: ¥216,000/annum ( ¥18,000 per month)

B. Employees of companies that do not implement occupational plans (see above) or self employed
   Individual type defined contribution pension plans
   The beneficiaries pay the premium (within the maximum amount of contributions as below)

-

Employees of corporations that do not implement occupational pension plans (see above) or defined-contribution pension plans

¥180,000/annum ( ¥15,000 per month)

-

Self-employed

¥816,000/annum* ( ¥68,000 per month)

* To be adjusted together with the contributions to the Individual Pension Savings (Kokumin Nenkin Kikin).

§ The age of both types of beneficiaries is less than 60 years old.

  • Investment --- Beneficiaries instruct management of own assets (contributions)

  • Benefits --- Old-age pension benefits, benefits to be paid in the event of an accident, lump sum payment in the event of holder’s death (old-age pension benefits are paid will be paid once the beneficiary reaches age of 60 years provided that he/she has subscribed to the pension for a designated number of years).

 

Corporation Taxation

  • Introduction of the mark-to-market valuation method

-

Securities held for trading purposes should be assessed according to the market price at the end of business year. The "lower-of-cost-or-market-valuation method" should be abolished.

-

Outstanding derivatives trading should be regarded as settled at the end of the business year, and the estimated profit or loss should be reported as profit or loss.

  • Of the special measures under the Industrial Revitalization Law, the reduced rates for the Registration and License Tax, which is imposed on the establishment or capital increase of companies (kabushiki gaisya/yugen gaisya) should be lowered further to 1.5/1000. (currently 3.5/1000 and 2/1000)

(Note) With regard to taxation relating to the split of corporations, consideration will be given to details in the tax system after the developments in current reviews of the Commercial Code and financial accounting are facilitated. Also, due consideration will continue to be given towards the introduction of the consolidated taxation system.

Response to Socioeconomic Changes

  • Reduction of interest tax on postponed inheritance tax payments

-

Reduction of the rate of the Interest Tax on postponed payment of the inheritance tax

(for example, where the value of real estate is more than 50% of that of taxable inheritance: 5.4% (currently) --> 3.6%)

(With special measures applied from January 1, 2000, in case the official discount rate stands at 0.5% annually: 3.3% (currently) --> 2.2%)

(Note) The above reduction should be applicable to the Interest Tax applicable for the period from April 1, 2000.

  • Environment and Welfare

-

For the special depreciation scheme for certain equipment to prevent pollution, types of equipment should be reviewed, for example, by adding those for reducing the levels of dioxin emissions, and the applicable period should be extended.

-

For the special depreciation scheme for recycling equipment, the types of equipment should be reviewed, for example, by adding new equipment to recycle used household electrical appliances, and the application period should be extended.

-

For the special depreciation scheme for equipment for the handicapped, ramp-equipped buses should be added to applicable equipment. While the rate of depreciation should be reduced, the applicable period should be extended.

  • Housing and Land

-

A special measure should be established to lower the rate of Registration and License Tax on the registration of ownership transfer of real estate to 30/1,000 (currently 50/1,000), if the real estate is obtained for a certain project by a qualified company engaged in a specified joint project involving real estate (through the Tokumei Kumiai (anonymous partnership) scheme) .

-

The applicable period of the special measure for real estate value relating to the registration of land (taxable value has been reduced to 1/3) should be extended.

  • Issues concerning the Hanshin-Awaji Earthquake (the Kobe Earthquake)

-

The applicable period for expiring special measures will be extended. (For example, measures on the exemption of the Registration and License Tax on the registration of preservation of ownership relating to buildings which have been newly constructed or obtained by the victims of the earthquake).

-

  • With regard to special purpose companies (SPCs), etc., necessary measures for the following reforms should be taken:

-

The range of SPC’s assets for securitization should be expanded.

-

The range of assets to be managed by securities investment companies (after the reform: investment corporations (tentative name)) should be expanded.

-

Special purpose trust funds and special purpose investment and trust funds (both tentative names) should be established.

Changes in Other Special Taxation Measures

  • Review of special taxation measures will be carried out with a view to applying truly necessary measures while ensuring an appropriate taxation system.

Others

  • The special additional personal allowance (¥100,000) for dependent children under 16 years old of should be abolished. (Currently: ¥480,000-->  ¥380,000: to be applied to the Individual Income Tax after CY2000)

  • With regard to the special measure on the submission of documents on payments or withholding records to the head of the tax office, submission in the form of a floppy disk or magneto-optical disk should be allowed under certain specified conditions. (The measure is to be enforced from November 1, 2000 and applied as from April 1, 2001.)

  • The special "blue-return" deduction should be increased to ¥550,000 (currently ¥450,000). (This is applicable only to taxpayers who record the transactions according to the published bookkeeping principles. This is to be applied to Individual Income Tax after CY2000.)

  • Properties outside of Japan which have been inherited or obtained as gifts by certain Japanese nationals who do not reside in Japan should be included in the subject of the inheritance tax or gift tax (after April 1, 2000).

  • Pertaining to the registration of real estate, with regard to the transfer registration of ownership as a result of the division of shared properties, the rate of the Registration and License Tax on the acquisition of the properties, which is other than those corresponding to the shared properties before the division, should be made the same as that on the ordinary transfer registration of ownership (after April 1, 2000).


(Reference)

FY 2000 Tax Reform (Initial Year)

(Tentative Estimation)

¥ billion

1. Promotion of private sector investment, etc.

- 347

2. Others

  (1) Abolishment of the additional personal allowance for children 

203

  (2) Consolidation of special measures for corporate tax 

14

  (3) Others

- 17

     Total

 - 147

(Note) There may be changes to the above figures as a result of more detailed estimations.

(- represents minus)