Japan Press Weekly

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2007 September 12 - 18 [ECONOMY]

Corporate tax rates on Toyota remain unchanged although its profits doubled

The tax policy of the ruling Liberal Democratic and Komei parties is one of giving large corporations and the wealthy generous tax breaks and of levying heavier taxes on millions of working citizens. A good example of the effect of this policy is one of the world’s top automakers, Toyota Motor Corporation based in Toyota City, Aichi Prefecture.

“A one-trillion yen (about 8.8 billion dollars) tax cut over 4 years? Is it true?” – a
38-year old man hired as a day worker at Toyota asked. He is a temporary worker sent from the Goodwill temporary staffing agency.

“I can make only 6,000 yen (about 50 dollars) for 8 hours of work. One day I had only 240 yen (about 2 dollars) in my pocket. How is it possible to justify this exorbitant gap between the corporation and workers like me?”

Data show profits and tax burdens (corporate tax, corporate residential tax, corporate business tax) changed proportionally up to 1998. From that year, while the carmaker made rapidly increasing profits, its tax burdens remained unchanged.

In fiscal 2006 Toyota Motor Corp. reported a profit of 1.56 trillion yen (about 12 billion dollars), which was more than twice as much ordinary profit as during the bubble economy years. But the amount of tax it paid did not increase.

Why? It is because the corporate tax rate was reduced in 1998 and 1999. The current corporation tax rate is 30 percent, but it was 37.5 percent up to 1997.

In addition, large corporations have enjoyed even larger tax breaks on research and development since 2003.

An Akahata estimate shows that Toyota Motor Corp was given tax breaks amounting to a total of one trillion yen (about 8.8 billion dollars) between fiscal 2003 and 2006.

Yearly tax breaks offered to large corporations and the wealthy under the Koizumi and Abe cabinets (FY 2001-2006) reached four trillion yen (about 35 billion dollars) .

While incomes are declining for working people, tax rates on them increased recently due to the abolition of two main tax cut systems: the fixed rate cuts on salaried workers’ income and residential taxes and the special deduction of taxable income on spouses. The total amount of the tax increase was 5 trillion yen (about 40 billion dollars).

Kunishima Takako, a 63-year-old pensioner, says: “The amount of my residential tax has tripled this year. This led to a doubling of my National Health Insurance premiums. But Toyota has been given a tax cut of one trillion yen over four years. How unreasonable this is!”

Toyoda Shoichiro is one of Toyota’s largest individual shareholders and the company’s honorary chairman. He and his son, Toyoda Akio, who is the president of Toyota Motor Corp., have received preferential tax treatment. For example, the total amount of capital-gains tax cuts they were given between FY 2003 and FY 2006 was about 500 million yen (about 4.5 million dollars). Why?

The two men are large individual shareholders of Toyota Motor Corp. The company’s stock dividends have more than doubled in the last 4 years, from 45 yen (about 0.4 dollars) to 120 yen (about 1.05 dollars).

In 2003, the government reformed Japan’s securities tax system to reduce the tax rate on stock dividends and capital gains from listed companies to 10 percent from 20 percent. With this, the amount of tax cuts for the two men was 500 million yen (about 4.5 million dollars).

Toyoda Shoichiro sold 4 million shares after 2003. It is believed that his profits on selling stocks were lso given tax breaks.

Putting pressure on government

“An effort to improve corporate vitality by means of decisive corporate tax cuts is necessary,” said a letter of request to the government from five business leaders, including Toyoda Shoichiro, Japan Federation of Economic Organizations (Keidanren) chairman (1994-1998). They specifically requested a “sizeable cut in the effective tax rate”. Toyoda, who was also Toyota Motor Corp. chairman, repeatedly pressed the government to cut corporate taxes.

This corporate tax rate was introduced in 1999 ostensibly as a measure to boost the economy along with the fixed-rate tax cuts, but the fixed-rate tax cuts alone have been abolished.

When Japan’s two main business associations, Keidanren and the Japan Federation of Employers’ Associations (Nikkeiren), merged to create the Japan Business Federation (Nippon Keidanren), its first chairman, Okuda Hiroshi (2002-2006) announced the business leaders’ position paper on a drastic tax reform. It said as follows:

“In order for the Japanese economy to achieve stable growth, a far-reaching tax reform to assist research and development as well as the founding of businesses and venture companies is necessary.

As Toyota Motor Corp. chairman and Japan’s business leader, Okuda pressed the Koizumi Cabinet to further reduce the corporate tax rate and to expand tax breaks on research and development.

In its recommendation on tax reform for FY 2007, Nippon Keidanren called for additional cuts in corporate tax rates, and demanded that the term of tax breaks for securities be extended beyond 2007.