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This week in tax: IMF pushes Japan to raise taxes

Will Japan raise taxes again?

The International Monetary Fund (IMF) has called on the Japanese government to cut back on emergency spending and consider tax increases to cover the costs of the COVID-19 pandemic.

The IMF may have provided the Japanese government with more arguments for raising taxes as the economy recovers from the impact of the pandemic. Japanese Prime Minister Fumio Kishida has used stimulus measures, as well as tax incentives, to boost economic growth.

“Fiscal policy should be nimble and flexible, adjusting the scale and composition of support in response to epidemiological and economic developments,” the IMF said as part of its report on the Japanese economy.

Although the Japanese economy was stagnant long before the pandemic hit, the IMF was optimistic about the country’s growth prospects. Japan may see its GDP growth rate increase to 3.3% in 2022 from 1.6% in 2021, partly thanks to the government’s stimulus package.

Prime Minister Kishida shocked investors in October when he suggested the 20% capital gains tax rate be increased as part of a fiscal consolidation. The so-called ‘Kishida shock’ saw spooked investors selling off Japanese stocks in reaction.

“As we debate a new form of capitalism, various policies will be required… to achieve a virtuous cycle between growth and distribution,” Kishida said at the time. “There is a need to consider the financial income tax. I’ve raised it as one of various options.”

The Japanese government has since shelved the proposal, but this does not mean it will stay on the shelf forever. The highest personal income tax rate is 55%, whereas consumption tax is at 10%. Japan may have to consider different tax increases to manage its debt burden.

Top headlines

Businesses want India’s 2022 budget to deliver ‘clarity’ on equalisation levy

The Indian government may be about to address key problems with the equalisation levy regime and digital tax reform as part of its 2022 budget.

Taxpayers in India may gain further clarity around the equalisation levy on e-commerce transactions as well as the removal of provisions related to tax collected at source (TCS). The 2022 budget is an opportunity for reform in these key areas, but there are plenty of other tax issues to address.

The Indian government may announce proposals to adjust transfer pricing (TP) rules, including lower cost-plus rates for companies with advance pricing agreements (APAs) settlements at higher rates. 

“The equalisation levy does not form part of Indian Income-tax law and are framed under a separate code. This raises issues on availing tax credit and treaty benefits in the hands of the non-resident. Thus, government may consider introducing provisions clarifying these aspects,” said Sandip Mistry, associate tax director at Siemens.

In April 2020, India introduced a 2% equalisation levy (EL) 2.0 on e-commerce vendors, applicable to non-resident e-commerce platforms selling goods and services. If a multinational company such as Amazon were to sell products online in India with no physical presence in the country, in theory, those transactions would be subject to the 2% tax.

Multinational companies have often called for further clarity over the EL. Technology companies have claimed it unfairly affected certain sectors and increased the compliance burden.

However, the OECD’s development on pillar one and two and its report on addressing tax challenges arising from the digitalisation of the economy could mean the Indian government may abolish the EL on e-commerce transactions.

Read the full article here

ITR Global Tax 50 2021-22: Zayda Manatta

In this exclusive interview, Zayda Manatta, head of the OECD Global Forum’s Secretariat, talks to ITR about what taxpayers can expect from her team in 2022.

Zayda Manatta has not let COVID-19 hold her back over the past year. As an international body made up of more than 160 countries, the Global Forum (GF) plays a crucial role in advancing tax transparency, but it has faced hurdles during the pandemic.

Nevertheless, Manatta has overseen key developments when it comes to the exchange of information on request (EOIR) and the automatic exchange of information (AEOI). Here she talks ITR through the difficulties and achievements of 2021, as well as her aims for 2022.

Read the full interview here

Next week in ITR

ITR is set to launch its Global Tax 50 rankings in February. Exclusive profiles of OECD tax officials and policymakers will feature alongside articles on the most important trends to follow in global tax. But ITR never takes its eye off the news.

The Indian government is set to announce its 2022 budget on February 1. Many companies are hoping for greater clarity on digital tax reform and the future of the equalisation levy, but the government has to layout its fiscal strategy to overcome the economic fallout of COVID-19.

At the same time, in-house tax teams are shifting budgets from compliance management to tax strategy for 2022. These teams must adapt as rules of tax planning have changed dramatically from the days when corporate tax did not make headlines.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.

more across site & bottom lb ros

More from across our site

An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.
The OECD’s rules may be impossible for businesses to manage, according to tax experts from companies including Shell.
The UK government is now committed to replacing the ‘super-deduction’ with a 100% capital allowances regime to offset the impact of the corporate tax rise to 25%.
Corporate tax is set to rise in the UK for the first time in decades, but the headline rate remains historically low despite what many observers think.
President Joe Biden’s nominee is set to be confirmed as IRS commissioner for a five-year term.
British companies are waiting to hear the details of what will replace the 130% ‘super-deduction’ next week, while Spain considers stopping a major infrastructure company moving to the Netherlands.
President Joe Biden wants to raise corporate tax and impose a higher stock buyback tax on US businesses, but his budget proposal faces insurmountable obstacles in Congress, writes Ralph Cunningham.
EY is still negotiating the terms of the plan to split its audit and consulting functions, but the future of tax services is reportedly a sticking point.
Country-by-country reporting is the best option for safe harbour provisions under the global anti-base erosion rules, according to tax directors at companies including Standard Chartered Bank and Pernod Ricard.