DPJ Govt Backpedaling on Tax Cut Plans

Tokyo, Oct. 31 (Jiji Press)--In face of severe revenue shortfalls,
the government led by the Democratic Party of Japan has begun tilting its
tax reduction policy in the opposite direction.

Finding it difficult to secure all the funds needed to carry out
the DPJ's election pledges to stimulate Japan's domestic demand only by
cutting into unnecessary spending, the government now thinks it unavoidable
to take some measures on the revenue side, government sources said.
While the Finance Ministry is trying hard to trim the record
95-trillion-yen budget requests for the next fiscal year from April, some
members of the government's Tax Commission are now talking about
backpedaling on the party's active tax cut plans.
In its manifesto for the August general election, in which the DPJ
won power, the party promised a series of tax cut measures, including the
elimination of provisional surcharges on gasoline and automobile taxes and
reduction in corporate tax rates for small and midsize companies.
Even scrapping the surcharges alone is estimated to cause a revenue
shortfall of as much as 2.5 trillion yen, a senior commission member said.
To cushion the impact of the sudden surcharge abolition, the
commission is now considering the option of having them fade away in years
from fiscal 2010. In addition, it will deepen discussions on
automobile-related tax rates taking into account the possibility of
introducing an environment tax in the future, the official said.
Other sources said the government is likely to refrain from
lowering corporate tax rates for small and midsize businesses in the next
fiscal year because the tax cuts' effects will be limited at a time when
many such firms are mired in the red.
On the tobacco tax, Senior Vice Finance Minister Naoki Minezaki, a
commission member, tried to brush aside concerns about a rate hike.
But related government officials predicted the government will
eventually implement the tax hike.
Prime Minister Yukio Hatoyama said Friday that it should be
possible to raise the tax.
The commission is also reconsidering the DPJ's pledges of not
abolishing income tax exemptions for dependents aged between 16 and 22 or
residential tax reductions for dependents aged below 70, informed sources
said.