Project Paper - Session 4
"Tax Reform from the Perspective of Economic Revitalization" (Abstract of Discussion Paper 04-J-012)
SAKATA Ichiro (RIETI Consulting Fellow / Deputy Director, Corporate Affairs Division, Economic and Industrial Policy Bureau, METI)
Given the presence of long-term budgetary constraints and the need to reconstruct the social security system, increases in tax and social security burdens are inevitable. There are concerns that increased burdens on the general public and companies may undermine the dynamism of the economy. However, without maintaining economic vitality, an increase in tax revenue � a prerequisite for the restoration of fiscal discipline � cannot be realized. Therefore, a tax reform for enhancing economic vitality must be implemented before increasing burdens. By focusing on corporate tax reform, this paper first of all shows that reform needs are changing from those reflecting the peculiarities of specific sectors to those of a cross-sectoral nature, which is accompanied by a major transformation in the decision-making process of the tax system. Based on this observation, the paper then calls for the introduction of new reform philosophies. Specifically, it recommends that two domains � "reform of tax system infrastructure" and "national strategy for inducing investment through the use of tax incentives" � be defined and established, that a notion called responsiveness to changes be introduced as a new guiding philosophy, and that the existing philosophies be clarified respectively and reorganized. The paper also discusses an ideal process for tax reform that suits the new philosophies. Finally, the paper presents concrete challenges that need to be addressed within the following three years with regard to each reform philosophy. For instance, it cites the need to drastically change the classification of business units and the implementation of institutional reform by taking a bird�s eye view of the three key areas, namely, tax, accounting and the Commercial Code.