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Japan Mulls Extending Tax Break in Earthquake Zone

Japan’s government may consider extending corporate tax breaks beyond the current five years for companies investing in the disaster-ravaged northeast, a policy maker said.

“The government will consider an extension depending on circumstances,” Yoshinori Suematsu, Japan’s vice minister for reconstruction, said July 13 in an interview at his Tokyo office. “It’s an extremely unique situation in the disaster area and we hope to attract many companies from both inside and outside of Japan.”

Prime Minister Yoshihiko Noda is plowing 19 trillion yen ($241 billion) into rebuilding from last year’s earthquake and tsunami. Japan, which has one of the highest corporate tax rates among advanced economies, in December created reconstruction zones providing tax relief and incentives for projects in 227 municipalities.

“We hope to lure 100 Japanese or foreign companies into the disaster area” in the next two to three years, said Suematsu, 55, who is also a ruling Democratic Party of Japan lawmaker. The government hopes to double the amount of direct foreign investment in Japan to 35 trillion yen by 2020 from 17.5 trillion yen in 2011, he said.

The reconstruction zone legislation includes measures such as five-year exemptions on paying the national corporate tax of 26 percent for companies setting up facilities in disaster areas. It also provides tax breaks for companies employing disaster victims, and special depreciation or tax relief on purchases of machines and equipment.

Japan’s effective corporate tax rate, which includes national and local taxes, is 36 percent, according to the Ministry of Finance. This compares with 41 percent in the U.S., 33 percent in France and and 24 percent in the U.K.

Receiving Approval

Suematsu said about 300 companies have received approval for using some of the tax waivers. Only one company has so far been approved for a five-year corporate tax exemption, according to the ministry.

About 9 trillion yen, or 61 percent, of the 15 trillion yen allocated for rebuilding in the fiscal year ended March was spent in that year, according to the reconstruction agency. The remaining 6 trillion yen will be rolled over to the current fiscal year or allocated to state coffers. This is in addition to the further 4 trillion yen initially allocated for fiscal 2012.

Attracting Investment

The Japan External Trade Organization, in collaboration with the government, is visiting overseas cities in the first tour of its kind to lure investment to the quake-stricken Tohoku region. The trade body is hosting a forum in New York today, having visited Hong Kong on July 9. It will go to Taipei on July 23.

The objective of the tour “is to create jobs and rebuild communities in Japan as part of the reconstruction drive,” said Suematsu, who worked at the foreign ministry for 14 years before being elected to parliament’s lower house in 1996.

The American Chamber of Commerce in Japan sees the perks as insufficient.

“Companies are not going to invest in Tohoku solely because of subsidies or tax breaks,” said Jonathan Kushner, co-chair of the ACCJ’s Tohoku Revitalization Task Force. “The country needs to become more conducive to entrepreneurship.”

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