Highlights of the Tax Reform in 1998

Highlights of the Tax Reform in 1998

(1) Temporary Income Tax Reduction

[1] Total amount of the Tax Reduction
-Individual Income Tax (National Tax) --- 1.4 trillion yen
-Individual Inhabitants Tax (Local Tax) --- 0.6 trillion yen

[2] Method and Amount of the Tax Reduction

	National Tax	Local Tax	Total
Taxpayer	18,000 yen	8,000 yen	26,000 yen
Spouse	9,000 yen	4,000 yen	13,000 yen
Dependant	9,000 yen	4,000 yen	13,000 yen
Typical Household *	45,000 yen	20,000 yen	65,000 yen

* A married family with two children

Additional Temporary Tax Reduction

(2) Corporate Income Tax

[1] Reducing Tax Rates of Corporation Tax (National Tax)

	Before	Present
Standard Rate	37.5%	34.5%
Reduced Rate for Small and Medium-Sized Companies ¹	28%	25%
Reduced Rate for Cooperative Associations, etc.	27%	25%

(Note)

This reduced rate is applied to the annual income (not more than 8 million yen) of corporations whose capital is not more than 100 million yen.

[2] Reducing Tax Rates of Corporation Enterprise Tax (Local Tax)

	Before	Present
Standard Tax Rate for Ordinary Corporations	12%	11%
Standard Tax Rate for Cooperative Associations, etc.	8%	7.5%

[3] Broadening the Tax Base
	-	Revision of reserve for bad debts, reserve for retirement allowance, and reserve for special repair
	-	Abolition of reserve for bonus
	-	Depreciation
			--	only straight line method will be applied to newly-obtained buildings
			--	shortening of useful life of buildings
			--	restriction of petty sum depreciable assets (200 thousand yen --> 100 thousand yen)
			--	abolition of simplified method of depreciation
			--	restriction of amortization of goodwill, etc.
	-	Abolition of valuation of securities of cost or market whichever is lower basis
	-	Introduction of percentage of completion method as revenue recognizing standard
	-	Abolition of installment basis, in principle etc.

(3) Finance-Related Tax

[1] Reducing Tax Rates of Securities Transaction Tax (Apr. 1. 1998 -)

	Transferred by securities company		Other transfers
	Before	Present	Before	Present
Stocks, etc.	0.12%	0.06%	0.21%	0.10%
Convertible bonds, etc.	0.06%	0.03%	0.16%	0.08%
Government bonds, debentures, etc.	0.01%	0.005%	0.03%	0.015%

[2] Reducing Tax Rates of Bourse Tax

	Before	Present
Future trading (excluding below)	0.001%	0.0005%
Future trading of yen interest	0.0001%	0.00005%
Option trading	0.01%	0.005%

(Note)

Eventually, Securities Transaction Tax and Bourse Tax will be abolished by the end of 1999.

[3] Tax Measures for New Financial System
	-	deferment of taxation concerning stock option under certain conditions
	-	tax measures to promote establishing Bank Holding Company System etc.

(4) Land Taxation

[1] Land Value Tax
	-	Suspended for the time being

[2] Income Tax and Individual Inhabitants Tax on Long-Term Capital Gains

Principle				for 3 years; 1998 - 2000
Capital Gains (million yen)	Income Tax	Individual Inhabitants Tax		Capital Gains (million yen)	Income Tax	Individual Inhabitants Tax
- 40	20%	6%	--->	- 60	20%	6%
40 - 80	25%	7.5%		60 -	25%	7.5%
80 -	30%	9%

(Note) Long Term : holding period is more than 5 years

[3] Additional Tax on Capital Gains for Corporations

Holding Period	Before	Present	period of suspension
5 years -	5%	suspension	1998 - 2000
2 years - 5 years	10%	suspension	1998 - 2000
- 2 years	15%	abolition	1998 -

[4] Others
	-	easing condition of special tax treatment for property replacement
	-	special tax treatments to promote securitization of land assets

(5) Others

[1] Increase of Personal Allowances
	-	Allowance for specific dependent (dependent between 16 - 22 years of age)
			--	Income Tax 530,000 yen --> 580,000 yen
			--	Individual Inhabitants Tax 410,000 yen --> 430,000 yen
	-	Additional allowance for special handicapped dependent living with the taxpayer
			--	Income Tax 300,000 yen --> 350,000 yen
			--	Individual Inhabitants Tax 210,000 yen --> 230,000 yen

[2] Introduction of Special Tobacco Tax (tentative name)
	-	Special Tabacco Tax : 820 yen per thousand pieces (Dec. 1. 1998 - ) etc.

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