Chairman pledges to accelerate talks on consumption levy.

The Tax Commission started deliberating Tuesday on tax revisions for fiscal 2006, focusing on changes in the way personal incomes are levied.

The government panel's debate, expected to last most of the year, will also take up the heated issues of consumption and environment taxes.

Starting next fiscal year, local governments will begin collecting up to 3 trillion yen of individual income revenue that is now levied by the national government.

This money will be added to local residence tax, which is also based on personal incomes.

An outline for tax revisions, agreed on in December by the ruling parties' tax system research commissions, proposed that the local residence tax rate be fixed at a uniform 10 percent-from the current progressive rates of 5 percent, 10 percent and 13 percent-increasing the burden on low-income taxpayers while lessening that of high-income earners.

To offset these changes, the Tax Commission intends to raise the maximum national income tax rate for high-income earners and take steps to lower the burden for low-income earners.

As a result, the combined local and national tax burden will remain much the same.

The commission plans to conclude by summer the basic framework for the 3-trillion-yen shift in income tax revenues.

On corporate tax, the panel will focus on a temporary tax break for information technology-related investment that is due to expire at the end of fiscal 2005.

The Tax Commission will debate whether to extend the tax break or review the overall corporate income taxation.

The tax beak was implemented in January 2003 as one of the government's economic stimulus measures.

Private-sector members of the Council on Economic and Fiscal Policy, an influential panel chaired by Prime Minister Junichiro Koizumi, say simply extending the IT tax relief is insufficient.

Instead, they are demanding corporate income tax rates be lowered to enhance companies' competitiveness against Asian rivals.

The commission rejected a similar call in 2002.

At a press conference after Tuesday's meeting, Chairman Hiromitsu Ishi said that the commission will accelerate deliberation over a controversial hike in consumption tax, suggesting its proposals on when to raise the tax and by how much will be ready by autumn.

Koizumi has ruled out a hike in consumption tax during his term as Liberal Democratic Party president which ends in September 2006.

However, Koizumi told the Upper House session on Tuesday that it is natural to discuss a consumption tax hike to finance the growing cost of social welfare, including pensions, medical insurance and nursing care insurance.

Other major issues facing the commission include simplification of liquor tax rates, which have spawned quasi-beer products, and introduction of the controversial environment tax.

Ishi said the commission will come up with an interim report on these issues.(IHT/Asahi: January 26,2005)