Osaka Prefecture to raise corporate tax.

OSAKA, March 22 Kyodo

The Osaka prefectural assembly approved a bill on Friday to raise local corporate tax for a three-year period in a bid to stem swelling deficits in prefectural finances.

The measure, approved by the Osaka assembly in a vote in the early hours Friday, would raise the amount of capitalization tax paid by Osaka-based companies capitalized above 10 million yen -- currently assessed in five ranks between 20,000 yen and 800,000 yen by 50% to 100%.

The Osaka prefectural government, which runs an annual deficit of about 500 billion yen, hopes the measure would raise 5 billion yen in extra revenues a year over the three-year period.

The tax hike, which takes effect April 1, is expected to affect 60,000 Osaka-based companies.

Osaka prefectural officials said the prefecture plans to spend the extra revenue to promote start-up businesses in the prefecture.

The taxation ordinance raises the capitalization tax paid by companies capitalized between 10 million yen and 100 million yen by 50% and that for companies capitalized above 100 million yen by 100%.

The capitalization tax is levied irrespective of the company's bottom line. Apart from the capitalization tax, Osaka Prefecture also levies a local corporate tax that is assessed on the size of company earnings.

Osaka Prefecture, one of the most heavily indebted local authorities in the nation, may fall under fiscal supervision by central government by fiscal 2006 unless there is significant improvement in local finances.

To avert compulsory restructuring, which could force major cuts in local welfare outlays, the Osaka government has sought to trim government expenses while raising corporate tax.

Last May, the Osaka prefectural government imposed a 3% tax on the gross operating profits of financial institutions operating locally with funds totaling over 5 trillion yen for five years from fiscal 2001.

To trim government expenses, Osaka Gov. Fusae Ota has vowed to reduce the size of the prefecture's payroll by 20% over 10 years beginning in fiscal 2003.