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LEAD: Tax panel urges gov't to clarify timing of sales tax hike+
(Japan Economic Newswire Via Acquire Media NewsEdge) TOKYO, Nov. 28_(Kyodo) _ (EDS: ADDING INFO, KOSAI'S COMMENTS)
The government's tax panel on Friday urged the administration of Prime Minister Taro Aso to state the precise timing of a hike in the consumption tax rate from the current 5 percent when it unveils a medium-term fundamental tax reform program by the yearend.
The Tax Commission, which advises Aso, said in its tax reform proposals for fiscal 2009 that it "strongly requests the government to clarify the timing of drastic tax reforms in the medium-term program," as these reforms are intended to secure necessary revenue sources to support the nation's rapidly graying population.
The council, however, did not propose its own ideas for when would be a good time to hike the tax, and by how much.
The proposals were finalized at Friday's plenary session of the panel, which mainly consists of scholars and economists. Yutaka Kosai, head of the commission, then handed a report of recommendations to Aso.
Aso has indicated his willingness to boost the sales tax rate after Japanese economic conditions improve, pledging to gradually implement a comprehensive tax reform program involving the consumption tax hike through the mid-2010s.
The premier has said he believes it will take around three years before the Japanese economy recovers and he instructed the government and the ruling parties to work out the medium-term program by the end of December.
After presenting the report, Kosai expressed his regret at a news conference that the council could not fully explore medium- to long-term tax reforms in Japan this year, as the country's economy was caught up in the global financial crisis.
He also indicated that the tax panel's role was restricted by political uncertainties in Japan, which are caused by the divided Diet, because any bold proposal by the council could influence the upcoming general election.
"The government decides when and how much to raise the (sales) tax. It will be a political decision," Kosai said. "It is not our mission to impose our opinions on the government. We should rather sort out various views and create an environment to facilitate such a decision-making process."
In the report, the panel acknowledged the "unprecedented confusion in global financial markets" since the autumn and that the Japanese economy has entered into a recessionary phase.
Under such circumstances, the paper said it "cannot be helped" that the government prioritizes economy-boosting measures over efforts to improve fiscal health for now.
The stimulus steps announced by the government include expansion of tax breaks for homeowners paying housing loans and temporary corporate tax cuts for small firms.
The panel warned, however, that those preferential tax treatments "should be put in place in a way that does not disturb" future fiscal reconstruction efforts and the purpose of the envisioned radical tax reforms over the medium term.
The report said tax breaks stipulated in the stimulus package should be "temporary and effective" and "help boost our country's economic growth potential."
In carrying out fundamental tax reforms, the panel called for introducing a taxpayer identification number system so as to correctly calculate individuals' income levels and the amount of tax payment.
On specific tax items, the panel suggested that the government should keep the current surcharges in its gasoline and other road-related taxes, because they "play an important role" in curbing carbon dioxide that exacerbates global warming.
The council also recommended a tax exemption for dividends that Japanese companies receive from their overseas units.
Such a scheme is expected to encourage Japanese firms to plow back earnings made abroad into domestic capital investment, research and development activities and recruitment of personnel, it said.
Kosai pointed out at the press conference that Japan nowadays tends to gain more profits from its overseas investments than from exports, and that the tax system should not restrict the flow of money.
Under the current system, dividend receipts from subsidiaries abroad and the domestic income of their parent firms in Japan are tallied and taxed. Taxes that overseas units have paid abroad are then subtracted from the Japanese parents' tax liabilities.
Japan's effective corporate tax rate, now at around 40 percent, is at the highest level among major industrialized countries.
Due to the heavy tax burden and complex tax procedures, Japanese companies often fail to collect profits earned by foreign subsidiaries, leaving the money to lie idle abroad.
Copyright ? 2008 Kyodo News International, Inc.
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