TAX NEWS - JUNE 2010

Japan Tax: Japan's Kan Sees FY2009 Tax Revenue Topping Forecast

01 June 2010, TOKYO -- Japan's finance minister said Tuesday government tax revenue for the previous fiscal year ended March is likely to exceed the Y36.9 trillion projection as corporate tax payments recover along with the nation's overall economy.

"There's a possibility that tax revenue will surpass that forecast in line with the economy's recovery," Naoto Kan said at a news conference.

Recovering tax income is good news for Japanese policy-makers struggling to rein in rapid growth in debt issuance without impeding the economic pickup through too sharp a cut in government spending.

Stumbling tax income due to the global economic crisis forced Japan's government to sell a record Y53.5 trillion in new debt last fiscal year. The aggressive borrowing to cover the gaping revenue hole and pay for stimulus steps fueled concerns over Japan's fiscal health by adding to its already huge debt. The central government's liabilities now amount to 180% of gross domestic product--the highest among industrialized nations--and the figure will be higher if local governments' debt is taken into account.

But Kan emphasized that tax receipts aren't likely to go over the forecast Y36.9 trillion "by a large margin." He noted that no sharp gains are likely in corporate tax payments, which have plunged in recent years as the U.S.-triggered global economic crisis wreaked havoc on the country's export-reliant industries.

Also, "there were times when our nation's tax receipts came to as much as Y60 trillion," Kan said. "It's clear to everyone that the current level of under Y40 trillion is extremely low."

Latest data released on the day by the Ministry of Finance showed that at the end of April, government tax receipts for fiscal 2009 stood at Y32.8 trillion, still Y4 trillion short of the estimate.

But the data have yet to take account of some corporate income and consumption taxes. Japanese companies that close their books in March usually pay a large part of those taxes in May. And finance ministry officials hinted at a briefing that such levies collected last month could top Y4 trillion given the recovery in Japanese corporate earnings in fiscal 2009.

While the officials declined to predict the final figure, they noted that in the previous fiscal year, the government pocketed additional tax receipts worth around Y5 trillion in May.

The ministry will release final fiscal 2009 tax figures next month, Kan said.

Late last year, the Democratic Party of Japan-led government revised the tax estimate lower to Y36.9 trillion from the initial forecast made under the previous Cabinet of the Liberal Democratic Party of around Y46 trillion. But Japan's economic prospects have since improved partly on robust Asian recovery that lifted the region's demand for Japanese exports.