Contact Center Solutions Industry News

[November 14, 2006]

2ND LD: Tax panel members agree to scrap tax cuts on capital gains+

(Japan Economic Newswire Via Thomson Dialog NewsEdge) TOKYO, Nov. 14_(Kyodo) _ (EDS: CLARIFYING LAST GRAF)

Most members of the government's tax panel agreed Tuesday to abolish the current tax breaks on capital gains and dividends, and raise them back to 20 percent from the current 10 percent, panel members said.

The Tax Commission, an advisory panel to Prime Minister Shinzo Abe, will debate the issue further to decide the timing of the abolition and how to deal with it in a recommendation that the panel plans to submit by the end of this month or early December, panel chairman Masaaki Homma said.

Homma told a news conference that the panel will study if the possible abolition of the tax breaks will negatively affect the stock market.

Earlier in the day, Financial Services Minister Yuji Yamamoto said that the current 10 percent tax rate on equity capital gains and dividends should not be reinstated to 20 percent as scheduled.

The minister said start-up companies cannot raise sufficient funds through indirect financing such as bank loans so the tax benefit is indispensable to promote direct financing such as stock issues.

The tax rate should stay at the current reduced level for some time in order to shift fund flows from savings to investment to promote growth of the securities market, Yamamoto said at a press conference after the day's Cabinet meeting.

The tax rate levied on capital gains and dividend receipts reaped through trading of listed shares was halved to 10 percent in 2003 on condition that the reduced rate would be effective for only five years in order to revive the then stagnant stock market. The current reduced tax rates will apply to capital gains until the end of 2007 and to dividend receipts until the end of March 2008.

The securities industry wants the tax reduction to stay in place on the grounds that consumers still keep "excessive amounts" of money in their savings accounts and the securities market has yet to achieve a desirable degree of growth.

The Finance Ministry, on the other hand, is against extending the tax cut beyond the time limit, arguing that a tax system that only alleviates the tax burden on stock trading profits is not permissible.

The ministry would first like to bring the tax rate on capital gains into line with the 20 percent rate levied on bank deposits before devising a comprehensive tax system that would cover all kinds of financial products.

Copyright 2006 Kyodo News International, Inc.

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