A characteristic of Japan's tax system
since the end of World War II has been heavy dependence on direct
taxes and a steeply progressive income tax.(*1) Taking into
account the rapidly aging Japanese population, the government
carried out a radical reform of the tax system in 1987 and 1988,
in a bid to strike a better balance among income, consumption,
and property taxes. As a result, the tax rate structure of the
personal income tax was revised, with the former 15 stages from
10.5% to 70% being changed to 5 stages from 10% to 50%. The
corporate income tax rate, which used to be 42%, was lowered
in stages to 37.5% in 1990. The maximum inheritance tax rate
was also lowered from 75% to 70%. In April 1989, a 3% consumption
(sales) tax cut, a form of value-added tax, was introduced,
and in April 1997, the rate was raised to 5%.
In the tax reform plan for fiscal year 1999, the government
implemented a permanent tax cut exceeding ¥6 trillion (personal
and corporate tax combined) in order to stimulate the stagnant
economy. The maximum personal income tax rate was lowered from
50% to 37%, and the maximum personal residence tax rate from
15% to 13%. Corporate taxes (corporate tax + business tax +
corporate residence tax) were lowered to an effective rate of
40.87%.(*2)
In December 2002, the ruling coalition decided on a tax reform
package for fiscal 2003 that featured net tax cuts valued at
about ¥1.8 trillion, including local taxes.(*3) The tax
reform plan proposed total tax cuts of some ¥2 trillion
through tax deductions for companies, including those for research
and development expenses and investment, as well as expanded
deductions related to land and securities. At the same time,
the package called for increased taxes worth about ¥200
billion levied on low-malt alcohol, wine, and cigarettes, the
abolition of special deduction for spouses in income tax, and
the introduction of pro forma standard taxation (assessment
by size of business) for the prefectural corporate business
tax.
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