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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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Bank Tax Ruling Will Deepen Japanese Debt
April 1, 2002
Summary
The Tokyo District Court ruled March 26 that a 3 percent tax on the gross profits of large banks operating in Tokyo violates the local tax law. The court ordered Tokyo to cough up 73.83 billion yen ($557 million) in illegally collected taxes, interest and damages.
Analysis
Mayor Shintaro Ishihara, who initiated the tax to shore up his municipality's leaky finances, has already pledged to challenge the ruling. In the likely event of his loss at the Supreme Court, Ishihara -- a charismatic nationalist and popular politician who does not belong to the ruling Liberal Democratic Party -- may find it necessary to challenge the federal government (in the form of the LDP) directly. Faced with such a threat, the federal government likely would have to buy the support of local governments by assuming their debt loads.
That could mean the ballooning of the Japanese federal government's estimated $3.1 trillion bond load by another $1.5 billion.
If Ishihara's case eventually reaches the Japanese Supreme Court, it is exceedingly likely that court also will rule against the local Tokyo tax given that the legal particulars are clearly against the city government. Such a high-profile ruling would be a double hit for local governments that adopted policies mimicking the Tokyo tax: They would be denied a funding source and would have to refund taxes already collected.
Japan's 3,300 regional and local governments were hardly in fighting shape before the ruling. As Japan's population ages and shrinks, tax collections are dipping and necessary outlays are rising, particularly in rural areas where the LDP holds sway.
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(Story Source)
(c) 2002 Stratfor, Inc.
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