Japan Tax Reform Plan Gets Final Approval in Parliament

Times Staff Writer

The ruling Liberal Democratic Party pushed a controversial tax reform package through the upper house of Parliament on Saturday evening after weathering a 26-hour marathon of harassment tactics by the opposition.

Passage of the package brings the first major overhaul of Japan’s tax system in nearly 40 years, but it comes amid an uproar over a stock-trading scandal that has seriously hurt the credibility of Prime Minister Noboru Takeshita’s administration.

After the Socialist Party failed Friday with a no-confidence motion against Takeshita’s Cabinet, the Communist Party delayed action on the six tax reform bills by introducing a series of motions to censure Takeshita and three of his ministers and to dismiss the chairman of the chamber’s tax panel.

The marathon session was then drawn out by a filibustering stratagem in which protesting lawmakers move in slow motion as they approach the speaker’s podium to cast votes.


After the first all-night session in the upper house in 13 years and continued delays Saturday, the ruling party used its majority to pass the legislation with a voice vote at 6 p.m. The tax reform, which passed the more powerful lower house Nov. 16, now becomes law and will be implemented April 1.

Tax reform was the cornerstone of Takeshita’s domestic policy, and he and other ruling-party leaders have virtually staked their political careers on its success.

Although the revisions will result in an initial net reduction in revenues by cutting individual and corporate income taxes, the core of the reform is an unpopular 3% consumption tax on most goods and services.

Critics maintain that the ruling party gained its overwhelming majority of seats in both houses of Parliament in the 1986 election partly because then-Prime Minister Yasuhiro Nakasone pledged not to enact a “large-scale indirect tax,” which they say has now been imposed in the form of the consumption tax.


Moreover, opinion polls show popular support for Takeshita’s Cabinet has plummeted in the wake of the stock scandal, in which Takeshita, many of the ruling party’s top leaders and even some opposition lawmakers have been implicated in ethically questionable trading. Takeshita’s finance minister, Kiichi Miyazawa, was forced to resign Dec. 9, and Takeshita announced Saturday that he would replace him with Tatsuo Murayama, 73, who held the post in 1977 and 1978. A reshuffling of the rest of the Cabinet is expected Tuesday.

In an editorial Friday, the Asahi newspaper said the ruling party has “betrayed the confidence of many people” in the way it muscled through the tax reform. Takeshita, too, is to blame, it said.

“People cannot trust this man whose sole concern was to rush the introduction of the consumption tax, when political ethics was a much graver issue for the nation,” the Asahi said.

Sponsors of the tax plan have justified it as a means of making the system fairer by redistributing the burden between direct taxes, which have become proportionately high in Japan, and indirect taxes. A broad-based tax along the lines of the consumption tax is necessary to maintain revenues as society rapidly ages, they argued.


Tax cuts worth about $74 billion in the first year are expected to have a stimulating effect on domestic demand, possibly helping the sale of imported products. That amount will be offset by $53 million in increased revenues, mostly from the consumption tax.

An effort to use the reform to add transparency to Japan’s arcane distribution system, where tax evasion is rampant, was thwarted by the powerful political lobby of wholesalers and retailers. Companies will not be required to submit invoices or receipts in documenting the consumption tax to authorities. Many will be exempt from detailed reporting requirements and allowed instead to calculate the tax with a formula that critics say underestimates profit margins.