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Japan mulls tax reform measures to boost funds

Middle-class tax * The tax threshold for a couple with two children is ?3.842 million (US$28,800) in Japan. * In Germany it is US$27,600. * In the US it is US$22,500. * In France it is US$21,000. * In Britain it is US$10,300. Source: Japan's finance ministry

Economic ministers in Japan suggested that raising nation's 5 percent consumption tax and expanding the tax base to include more lower income earners could serve to boost sagging government finances.

Finance Minister Masajuro Shiokawa said on a Japan Broadcasting Corp (NHK) talk show that the day for raising the consumption tax was coming because the government's finances were hurting.

"It's not something that will happen right away, but in order to reform the structure of government finances, I think it will some day be inevitable," Shiokawa said on Saturday.

Shiokawa also suggested lowering the minimum taxable income level so more low-income earners would pay tax, while simultaneously lowering the income tax rate on others, noting that "the tax burden on the middle class has become extremely heavy."

State Minister in Charge of Economic and Fiscal Policy Heizo Takenaka echoed Shiokawa's comments on the "Sunday Project" talk show.

"Lowering the minimum tax threshold will naturally be considered," Takenaka said.

The tax threshold for a couple with two children is ?3.842 million (US$28,800) in Japan, higher than Germany's US$27,600, the US' US$22,500, France's US$21,000, and Britain's US$10,300, the program said, citing finance ministry statistics.

The lowest income tax rate is 10 percent, rising to 37 percent, with the highest level of taxation starting on income above ?10 million (US$75,100).

Taxes have fallen far short of government spending, with the government issuing ?30 trillion in government bonds this fiscal year alone to cover the difference.

Japan's long-term debts will total ?668 trillion by the end of fiscal 2001, some 130 percent of annual gross domestic product, the highest in the industrialized world.

To rectify the problem, two of Prime Minister Junichiro Koizumi's top economic and tax councils are to start discussing ways to reform the tax system later this month.

Changing the current 7-to-3 ratio of direct taxes, such as income taxes, to indirect taxes, like the consumption tax, is expected to be one of the dominant themes.
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