Japan Tax Breaks For Companies: Updated Dec. 27

 Source: https://the-japan-news.com/news/article/0008080769

Article:

To encourage companies to raise wages, the government plans to expand incentives to provide larger tax breaks to firms that do so, according to a draft of the fiscal 2022 tax reform proposal.

The government and the ruling parties confirmed a broad framework for tax reform Wednesday, with an emphasis on distribution of wealth to realize Prime Minister Fumio Kishida’s “virtuous cycle of growth and distribution” policy.

Firms that do not raise wages by a certain amount will in effect be penalized by not being able to receive tax breaks on investment in the government’s carrot-and-stick approach.

Ideas:

The ideas of tax breaks for companies who increase wages might be a good idea but the real question is will it work and how many companies will take advantage of the incentive.

Then the next question is, with increase in costs from suppliers and supplies to energy costs, now in Japan, will the tax breaks be enough for companies to cover some or all of the increase in costs that companies are facing now.

Yes, something is always better than nothing, but will companies see it that way instead of a 0 sum game or an all of nothing game. In the long term will the tax breaks be more than the long term increase wages.

Will companies act in their self-interests or will take see as contributing to the welfare of Japan and the Japanese economy overall.

Former Prime Minister Abe came out recently and has suggested that Kishida return to the idea of Abenomics as a way to continue economic growth in the Japanese economy.

But in reality, is the  Kishida plan that much different from Abenomics? Time will as to really what Kishida's plan really is other stating he wants to re-distribute wealth in the Japanese economy.

Article:

The Liberal Democratic Party’s Research Commission on the Tax System and the tax panel of its coalition partner Komeito plan to announce the ruling bloc’s tax reform framework by the end of the week.

The centerpiece of the reform is the tax break system for raising wages. Small and midsize enterprises that raise the total payroll of employees by at least 2.5% will qualify for a corporate tax deduction equivalent to a maximum of 40% of the increase, according to the draft. The current deduction is 15% for all companies.

Large companies will receive a maximum 30% tax break if they meet certain requirements, while some corporate tax deductions for spending in areas such as research and development will be tightened for those that are reluctant to raise wages.

Ideas:

It appears that the tax incentive plan might be targeting small and medium sized businesses a little more than large companies. And or the Kishida plan recognizes  large companies maybe don't need has much of an incentive as the small and medium sized companies to increase wages.

Most likely it is probably true that small and medium sized companies are under more constraints or have less resources available to increase wages. While large companies have the resources needed to increase wages, but they don't do it.

Talking to sources in Japan about what Japanese companies might do, the consensus is that they are not sure but think at this time some companies, especially small companies are not going to take advantage of the incentive plan. 

And it looks like there are some penalties if a company doesn't participate in the tax plan. But will decreasing research and development funds or subsidies be enough to get companies to participate, and how much will be reductions be.

Article:

To be eligible for the tax reduction, big firms are required to increase the total payroll of employees continuously working from the previous April-March fiscal year by at least 0.5% in fiscal 2022. From fiscal 2023, these companies will be required to increase their total payroll by at least 1% or make capital investments above a certain level.

Up to now, the government has allowed large companies to apply for corporate tax credits even if their total payroll barely increases.

“The government has provided more ‘carrots’ than ‘sticks,’” said Masakazu Tokura, the chairman of Keidanren (Japan Business Federation), at a press conference in the Ehime capital of Matsuyama on Wednesday.

Ideas:

An increase of 0.5 % doesn't seem that much and will company employees feel any real difference in their salaries. The idea that a 0.5% increase is going to get employees to feel better about their salaries, with the increase in costs related gasoline, home energy costs, an increase in supermarket costs, not including increases in restaurants price increase might be missing the mark with what consumers really need now.

There most likely will not be a multiplier affect here, as most employees gets an increase in wages, the more spending they will do and the more the economy will begin to grow again, which in turn benefits even more in the economy.

Take away the pandemic, or besides the pandemic, why has consumer spending in Japan reached the level of other advanced economies who where consumer spending is as much as 60 percent or more of GDP?

One might assume, or guess, that Japan workers haven't received any real increases in salaries for many years. Some sources say up to ten years for many.

And then there is a recent article that states up to 43,000 have lost their jobs since the start of the pandemic in Japan. There are always going to be job losses in a market economy, but what is the Japanese government doing to help those who have lost jobs? 

If Kishida and the Bank of Japan too want to really re-distribute wealth they need to think of the former workers to how have lost their jobs. Most likely most of them were/are in the services industry jobs.

Article:

For individuals, the government plans to change the system of tax breaks for housing loans, to provide deductions from income tax and resident tax. The duration of the tax breaks will be extended to 13 years for newly built homes while remaining at 10 years for existing houses, though it will be reduced to a 0.7% tax exemption from the current 1%.

Moreover, the housing loan balance eligible for the tax reduction will be set at a maximum of ¥50 million for “durable, high-quality housing” under a preferential treatment for homes with high energy efficiency.

The government has explained that the new tax break system on housing loans is expected to benefit middle-class earners in terms of the size of the deduction, but some people may see their tax benefits decrease depending of their loan balance.

Ideas:

So the idea is to give tax breaks on housing loans. But again will it be enough? If housing prices are already too high again will consumes or those who have existing homes or those looking to buy a home will they think of the new tax break enough?

While the Japanese government is trying to do something, perhaps like all, they are operating under a set of constraints that restricts them from offering better incentives than what is being offered.

Or possibly like any negotiation, these are initial offerings and later might increase the incentives as needed. But most likely not as government and political constraints might limit their options.

Time will tell just what will happen with this scenario.

Have a nice day and be safe!