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Gov't tax panel to propose cutbacks in deductions.

TOKYO, May 9 Kyodo

The government's tax panel will propose consolidating and abolishing a variety of tax deductions as measures for comprehensive tax reforms, the panel head said Thursday.

But it is unlikely to call for a cut in the minimum income tax rate to lighten increased tax burdens on low- and middle-income people stemming from fewer deductions, Hiromitsu Ishi, chairman of the Tax Commission, said in an interview with Kyodo News.

''We cannot lower the minimum income tax rate'' which is currently set at 10%, because the move would result in substantial falls in tax revenues, Ishi said.

The Finance Ministry estimates the nation's tax revenues would decrease by about 5 trillion yen a year if the minimum income rate is reduced to 5%, making the severe revenue situation even more worse.

Ishi said the panel is expected to propose reviews of the spousal deductions, the exemption for working students, and insurance premium deductions, to meet the needs of a changing society.

He suggested the panel is likely to propose lowering spousal deductions rather than calling for their abolishment to stem the increases in tax burdens.

For example, a household with an annual income of 7 million would have to pay roughly 120,000 yen more in taxes if the deductions were abolished.

The proposals will be included in a basic policy for comprehensive tax reforms to be compiled in June.

Ishi said the panel is expected to propose expanding the basic exemption amount to about 500,000 yen from the current 380,000 yen after abolishing and consolidating tax deductions in an effort to simplify the deduction system.

He also said it is likely to urge the government to expand social benefits for low- and middle-income people, such as allowances for children and the elderly, to ease the impact of abolishment and consolidation of deductions.

The government's tax panel and the Council on Economic and Fiscal Policy chaired by Prime Minister Junichiro Koizumi have been holding discussions separately on comprehensive tax reforms.

Each body will unveil a basic policy for the reforms in June.

Comprehensive tax reforms are a key pillar of Koizumi's economic structural drives.

Private-sector members of the panel are calling for a cut in the maximum income tax rate of 37% as well as cutbacks in tax deductions, and the two bodies are expected to have consultations before unveiling the basic policy.
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Publication:Japan Weekly Monitor
Date:May 13, 2002
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