By RYUHEI TSUTSUI/ Staff Writer
September 6, 2022 at 17:55 JST
Interest group representatives gather at the Tokyo headquarters of the ruling Liberal Democratic Party every December to lobby for extensions of their favorite tax incentive programs. (Asahi Shimbun file photo)
Special tax incentives provided to households and companies decreased tax revenues by 8.048 trillion yen ($57 billion), or about 13 percent of the total collected in fiscal 2020, according to Finance Ministry reports.
The tax benefits range from income tax deductions for households taking out housing loans to corporate tax deductions for companies spending on research and development.
But a more murky area benefits certain industries or companies with no assessments of whether the tax incentives are having the intended effect.
These deductions and incentives have been dubbed a “hidden subsidy” to companies.
The Finance Ministry submits annual reports to the Diet that estimate the decrease in tax revenues due to the tax incentives. The latest report was for fiscal 2020, when 60.822 trillion yen in tax revenue was collected.
Central government budgets have expanded to deal with the novel coronavirus pandemic and to strengthen national defense. Therefore, greater attention will likely focus on finding revenue sources to pay for such programs in the budget for next fiscal year.
As of January, there were 367 different tax incentive items.
A law passed in 2010 designed to increase transparency of the various tax incentives requires the Finance Ministry to also release annual reports about incentives related to corporate taxes.
Although these reports are available over the internet, the names of companies that receive the tax benefits and their reduced amounts paid in corporate taxes are not disclosed.
A provision in the law requires the central government ministry overseeing the tax incentives to assess the effectiveness of the program when requests are submitted to extend the incentives.
The internal affairs ministry in turn looks at whether the ministerial assessments are being conducted in an appropriate manner.
But in fiscal 2021, when 30 assessments were examined by the internal affairs ministry, it found that 23 cases lacked objective data to evaluate the past effects of the tax incentive program.
The assessment program itself has been criticized because many of the ministries established objectives that were vague, making it difficult to assess whether the objective was met and what effect the incentive had.
“Providing incentives for the tax burden without a sufficient assessment of the effects is a major problem,” said Shigeki Morinobu, a research director at the Tokyo Foundation for Policy Research. “There is a need to conduct a fundamental review of the tax incentives to determine if they are effective.”
Kenjiro Tatsuoka, a researcher at the Japan Research Institute, said information disclosure was inadequate because data of individual companies were not released.
For each tax incentive program, the Finance Ministry only releases the number of companies that used the benefit and the total amount of corporate tax saved, but no names are disclosed.
The business sector has strenuously resisted any move to release the names of companies that receive the tax incentive.
Despite such weak oversight, ministries annually submit requests to the Finance Ministry for an extension in tax incentive programs they oversee.
This year, 139 such requests were submitted. Only one request called for eliminating or reducing the amount of the tax incentive.
Industrial groups lobby lawmakers and ministries to extend the tax incentives, and the lawmakers and ministries in turn submit the requests to the Finance Ministry.
“While I believe a comprehensive review is needed, there is nothing we can do” in the face of such coordinated action, a high-ranking Finance Ministry official said.
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