Gist of the Tax Reform for FY 1999

(Tentative)

Gist of the Tax Reform for FY 1999

1. Permanent Tax Reductions

i) Personal Income Taxation

The highest marginal tax rates will be reduced to promote working incentives and entrepreneurship, and proportional tax reductions will be implemented to reduce the tax burden of taxpayers, in particular those with medium income.

Reduction in the Highest Marginal Tax Rate

	- Personal Income Tax	(National)	:	50%	-->	37%
	- Inhabitant Tax	(Local)	:	15%	-->	13%

Proportional Tax Reductions

	- Personal Income Tax Deduction rate	:	20%	(Ceiling 250,000 yen)
	- Inhabitant Tax Deduction rate	:	15%	(Ceiling 40,000 yen)

These tax reductions will be applied for Personal Income Taxes in and after CY1999, and for Inhabitant Taxes in and after FY1999.

Personal Income Tax reduction will be implemented for withholding taxes on wages and salaries starting from April 1999.

ii) Corporate Income Taxation

Reduction in Standard Tax Rate

			FY1997		FY1998		FY1999
- Corporation Tax	(National)	:	37.5%	-->	34.5%	-->	30.0%
- Corporate Enterprise Tax	(Local)	:	12.0%	-->	11.0%	-->	9.6%
--> Combined Effective Tax Rate		:	49.98%	-->	46.36%	-->	40.87%

Reduction in Special Tax Rate for Small Business

		FY1997		FY1998		FY1999
- Corporation Tax	:	28%	-->	25%	-->	22%
- Corporate Enterprise Tax	:	6.0%	-->	5.6%	-->	5.0%

These tax reductions will be applied for accounting periods beginning on and after April 1, 1999.

2. Measures for Children and Education

With a view to reducing the burden of child care and education on households, exemptions for dependent children will be increased.

i) Increasing the exemption for dependent children under 16 years old.

For Personal Income Tax

380,000 yen

-->

480,000 yen

ii) Increasing the special exemption for dependent children between 16 and 22 years old.

- For Personal Income Tax	:	580,000 yen	-->	630,000 yen
- For Inhabitant Tax	:	430,000 yen	-->	450,000 yen (*)
				(*) Starting from FY 2000.

3. Housing- and Land- Related Tax Measures

In order to cope with the current severe economic situations, extraordinary measures related to housing will be taken to prop up the economy, and land-related taxes will be revised to revitalize land transactions.

i) Introduction of Tax Credit for Housing Loans System

With a view to revitalize the economy within about two years, the current tax credit system for housing loans will be revised as follows, to be applied for the next two years.

- Extension of deduction period		6 years	-->	15 years
- Increasing the ceiling on loan outstanding		30 million yen	-->	50 million yen
- Deduction rates :	First to sixth years	1%
	Seventh to eleventh years	0.75%
	Twelfth to fifteenth years	0.5%

--> Maximum amount of deductions	:	5,875,000 yen in total
		500,000 yen per year for the first six years
(Current maximum amount	:	1,700,000 yen in total)

	-	Loans for acquisition of land, purchased together with a house, will also be qualified for the above-mentioned tax credit.
	-	The upper limit for floor space (240m²) will be eliminated.
	-	Taxpayers who choose to carry over capital losses for their residential property will also be entitled for this tax credit. (Until this year, taxpayers have to choose either the tax credit or the carry-over loss.)

ii) Special Treatment of the Gifts from Parents or Grand Parents for Acquisition of Residential Property

-
This special tax treatment allows taxpayers to calculate the gift tax as five times the amount of tax on one-fifth of the amount of the gift (The ceiling on the amount of gift taken into account for this special treatment will be increased from 10 million yen to 15 million yen).

-

Upper limit for floor space of residential houses eligible for the special treatment will be eliminated.

-

The special treatment will be effective until December 31, 2000.

iii) Preferential Treatment of License and Registration Tax

Housing : The upper limit for floor space (240m²) of residential houses eligible for reduced tax rates will be eliminated and the term for this preferential treatment will be extended by another two years.

Land : Tax base will be reduced to a third of assessed value (Currently 40% of assessed value).

iv) Personal Income Taxes on Capital Gains from Transfer of Land

Personal Income taxes on capital gains from transfer of land held for more than five years will be reduced (for the next two years).

On the first 60 million yen : 26%

On the gains above
60 million yen
:
32.5% ---> On all gains 26%

4. Tax Reduction for Investment in Plant and Equipment

To promote information-related investment and investment by small- and medium-sized enterprises, tax reductions for investment will be implemented

i) Expensing the Acquisition Costs of Communication- and Information- Related Equipment

The acquisition costs of certain equipment, including personal computers, which are acquired between April 1, 1999 and March 31, 2000, and are less than \1 million of value, will be fully deducted during the accounting period of their acquisition.

ii) Measures to Promote Investment by Small- and Medium- Sized Enterprises

This special tax treatment, introduced by Comprehensive Economic Package in April 1998 to promote investment in machinery equipment and trucks, will be extended and expanded.

-
The term for this measure will be extended. (until the end of May 1999 --> until the end of May 2000).

-

The scope of trucks that are eligible for this measure will be expanded (trucks with weight more than 8t --> more than 3.5t).

5. Tax Measures Related to Financial Markets

Responding to the globalization of the economy and the development of reforms in the financial system, measures will be taken to make Japanese financial markets more attractive and to cope with difficult situations for corporate pension plans.

i) To promote international use of Yen, following measures will be taken :

-
Exempting withholding tax on interest from Government bonds in the Bank of Japan book entry system paid to non-resident individuals and foreign corporations (Effective for interest for a interest calculation period beginning on or after September 1, 1999).

-

Exempting withholding tax on original issue discounts for TBs and FBs (Effective for TBs and FBs to be issued on or after April 1, 1999)
(Measures to ensure tax compliance will be introduced together with the above measures)

ii) Securities Transaction Tax and Bourse Tax will be abolished on March 31, 1999.
The special measure for listed stocks to allow the option of being taxed by 1.05% on proceeds of sales in lieu of being taxed by 26% on capital will continue to be applied until March 31, 2001, and then, will be abolished.

iii) Special corporation tax (imposed on assets contributed by employers for corporate pension plans, etc. The tax rate is 1%.) will be suspended for two years, considering difficult situations for corporate pension plans which complement the public pension systems.

6. Measures Related to Okinawa

Reduction in aviation fuel tax for flights to and from Okinawa
With a view to reducing air fares between Okinawa and other places of Japan, aviation fuel tax for Okinawa will be reduced further. (The current tax rate of 60% of the base rate will be changed to 50% of the base rate.)

7. Other Special Measures

i) Reduction in inheritance tax for succession of business
The upper limit of the size of the land used for specific business purposes, for which preferential methods in calculating the tax base are applied, will be expanded from 200m² to 330m²

ii) Reduction in aviation fuel tax for flights to and from remote islands
With a view to maintaining air routes that are necessary for the life of people living in remote islands, aviation fuel tax for certain air routes will be reduced by 25%

8. Reduction in Interest Rate on Postponed Tax Payments and Overdues

i) The interest rate applied to postponed payments of taxes (excluding inheritance tax) and to overdues will be reduced from 7.3% to the level of 4% plus the Official Discount Rate.

ii) The interest rate on postponed payments of inheritance tax will also be reduced at the same ratio.

9. Rationalization of Special Taxation Measures

10. Consolidated Taxation System

The full-scale examination will be started.

	-	This special tax treatment allows taxpayers to calculate the gift tax as five times the amount of tax on one-fifth of the amount of the gift (The ceiling on the amount of gift taken into account for this special treatment will be increased from 10 million yen to 15 million yen).
	-	Upper limit for floor space of residential houses eligible for the special treatment will be eliminated.
	-	The special treatment will be effective until December 31, 2000.

	On the first	60 million yen	:	26%
	On the gains above	60 million yen	:	32.5%	---> On all gains 26%

	-	The term for this measure will be extended. (until the end of May 1999 --> until the end of May 2000).
	-	The scope of trucks that are eligible for this measure will be expanded (trucks with weight more than 8t --> more than 3.5t).

	-	Exempting withholding tax on interest from Government bonds in the Bank of Japan book entry system paid to non-resident individuals and foreign corporations (Effective for interest for a interest calculation period beginning on or after September 1, 1999).
	-	Exempting withholding tax on original issue discounts for TBs and FBs (Effective for TBs and FBs to be issued on or after April 1, 1999) (Measures to ensure tax compliance will be introduced together with the above measures)