Japan Plans a Tax to Curb Land Prices : Housing: In Tokyo a square foot can bring $26,850. But some say the government proposal is too watered down to make a difference.

Japan’s ruling party plans to introduce an unprecedented tax to curb soaring land prices, which have more than doubled in the past five years.

But some market experts say the proposed measure is so weak it is hardly worth bothering with.

The ruling Liberal Democratic Party decided last week to set an annual landholding tax of 0.2% of the estimated value of a property, starting in 1992. The plan would raise the tax to 0.3% the following year, party sources said. The rate is expected to be reviewed every five years.

The LDP is expected to include the new tax plan and other measures in a package aimed at controlling land prices. The package will be submitted as a government bill to Parliament, which is to open its regular session today.

Prime Minister Toshiki Kaifu has vowed to tackle the problem of soaring land prices, which have made some individuals wealthy but have also caused great concern among average wage earners and businesses alike.

But economists say the basic rate of 0.3% is far below the 1% that they believe is necessary to drive down land prices by more than 20% during the next several years.

The party’s new plan would allow many exemptions, so its effect would be minimal, they said.

“The proposed new landholding tax was so heavily watered down that it would not have much effect in cutting land prices,” a senior economist at a major bank said.

“The landholding tax is aimed at a small number of big corporations, and it lacks fairness,” Takashi Ishihara, chairman of the Japan Assn. of Corporate Executives, told a news conference after announcement of the plan. The group is one of Japan’s four major economic organizations.

Under the party’s formula, a plot valued at less than $7.5 million is exempt from the tax. The party also proposes exemptions for housing land of less than 10,800 square feet, farmland, forests and land used for public purposes such as medical care and welfare.

The average price of land in Tokyo is about $860 a square foot. But in the central Ginza district, the Times Square of Tokyo, it is valued at $26,850 a square foot.

By comparison, land in mid-town Manhattan in New York City can range from as little as $500 a square foot up to $3,000 or more, experts say. But prices are hard to peg because of the extremely weak market.

Land prices in urban areas of Japan rose an average of 7.3% in the six months ended Sept. 30, after an 8.3% rise the previous six months, according to the Real Estate Institute, a trade group. This was the first slowdown in the rate of increase since early in 1988.

When the idea of a tax was raised in October, several members of the ruling party voiced strong opposition because the tax was aimed at corporations. The corporate sector is a generous supporter of the Liberal Democrats.

The corporations have unleashed a torrent of criticism against the idea of a landholding tax, which they say would impose a disproportionate burden on property-rich firms.

Political opposition might make it hard for the party to push the new tax through both houses of Parliament, economists said. The ruling party suffered a historic defeat in upper-house elections last year mainly because of public anger over a sales tax introduced in April, 1989.

Even if the tax passes, some experts are skeptical.

“A new tax is a good idea for controlling land prices, but it would have limited impact if its implementation were incomplete,” Masaru Takagi, chief economist at Fuji Bank, said before the measure was formally proposed.

Land prices would fall 3% to 4% if the tax were 0.5%, said a recent report by the Mitsui Research Institute, which is affiliated with Mitsui Bank.

Many analysts say land prices probably will fall gradually in the next few years even if no tax is imposed.