Tokyo Endorses Levy on Sales, Interest From Savings, in Tax Reform Proposal

The government on Friday endorsed a tax reform plan that would reduce personal and corporate taxes but introduce a sales tax and impose a levy on interest from savings accounts.

The plan still needs the approval of Parliament where the governing Liberal Democratic Party has a comfortable majority. It is opposed by some members of government, including the minister of finance.

The proposal was worked out after weeks of negotiations by the Tax System Research Commission. If approved, it would be Japan’s first tax reform since 1950.

Supporters say the package would increase business investments and narrow the gap between investment and savings. Critics oppose taxing interest from savings accounts and say a sales tax places a disproportionately heavy burden on low-income people.

The package proposes reducing personal and corporate taxes by $27.5 billion. The loss is to be offset by other levies, such as taxing the interest on savings accounts.

A Nation of Savers

Under current laws, interest on savings of up to $18,500 cannot be taxed. The proposal would exempt from taxation savings accounts held by one-parent households and senior citizens.

Japan is a nation of savers. Especially popular is the postal savings system managed by the government.

The tax-free savings system has been criticized by U.S. officials who said it discourages spending money on imported goods.

The country’s largest opposition party, the Japan Socialist Party, criticized the reform plan, saying the government “has spent most of its time trying to make deals with industries and other pressure groups and has not seriously considered the largest taxpayer group, the working citizens.”

A U.S. government economist in Tokyo, who spoke on condition of anonymity, called the reforms a positive development which should spur economic growth.