Tax impasse to affect more than just gas

BY KENICHI GOROMARU, THE ASAHI SHIMBUN

If a deadlock continues on whether to maintain the higher gasoline tax rate, consumers and businesses may take a hit as other tax breaks packaged with the supposedly temporary measure are set to expire at the end of March.

Talks have gone nowhere in the Diet on extending a provisional measure imposed decades ago to raise the gasoline tax rate to secure revenue for a special account earmarked for road construction and maintenance.

The problem is that the bill for the gasoline tax rate includes an extension of about 40 other special taxation measures.

The main opposition Minshuto (Democratic Party of Japan) has pushed to scrap the higher gasoline tax rate and lower gasoline prices. It has refused to debate the bill in the Upper House, where it and other opposition parties hold a majority.

The bill has already passed the Lower House, where the ruling coalition dominates.

Minshuto has submitted its own bill to extend the special taxation measures, except for the gasoline tax rate. But it is unclear whether the bill will be approved before the March 31 deadline.

A senior Finance Ministry official voiced concern that a prolonged impasse over the gasoline tax would result in other special taxation measures running out, some of which would have an immediate impact upon their expiration.

One example is a measure that halves the tax rate on the registration of transfers of land ownerships.

The registration and license tax rate is currently 1 percent of the taxable value of land plots calculated for payment of the fixed assets tax.

If the provisional measure expires, purchasers of houses would face an additional tax burden of several hundreds of thousands of yen on registering ownerships of the land plots.

An official at a major real estate company fears the extra tax burden would deal an additional blow to the industry because housing sales have slowed.

Travelers returning from overseas trips would also be affected.

They would be required to pay more taxes on cigarettes and alcohol, outside of duty free allowances, purchased abroad for personal consumption and for souvenirs.

Companies would also be hit if other special taxation measures expire, such as provisional tax breaks on cross-border financial transactions.

One tax break relates to transactions at the Japan Offshore Market, where Japanese financial institutions accept deposits from individual and institutional customers outside Japan and lend the money to borrowers abroad.

Funds for those transactions are managed separately from funds for domestic transactions.

The 15-percent income tax is not imposed on the interest domestic institutions pay to overseas customers on their deposits.

Another transaction to be affected is the repurchase transactions of foreign bonds between domestic and foreign financial institutions.

Domestic institutions procure funds denominated in foreign currencies by leasing foreign bonds they hold to financial institutions overseas.

They also receive the funds as a guarantee for the bonds they leased, and pay interest on the guarantee funds.

Currently, the 20-percent income tax is not imposed on the interest they pay to foreign institutions.

It is a common practice abroad to exempt taxation on interest generated from such financial transactions.

Taxation on that interest could incur higher costs on domestic financial institutions procuring funds.

"Foreign financial institutions may move out of the Japanese market, considering that there is a risk of political factors suddenly altering financial systems," a source said.

Expiration of the special measure on taxation on naphtha, meanwhile, would immediately add costs to the petrochemical industry.

Naphtha, which is distilled from petroleum or coal tar, is widely used as material for various petrochemical products.

The measure currently exempts a tax of little more than 2 yen per liter of naphtha.(IHT/Asahi: March 26,2008)