TOKYO, March 30: Japanese policymakers said on Friday they would implement tax reforms to kick life into the stagnant economy, but the announcement lacked hard details and fell short of hopes for more radical steps.

We will try to create a tax system that emphasises activity as well as long-term sustainability, the Council on Economic and Fiscal Policy said in a statement.

Economics Minister Heizo Takenaka, an influential council member, told a news conference the council had agreed that a greater number of individuals and firms should share the tax burden to allow for a lower rate on current taxpayers.

But widely expected proposals such as tax cuts on corporate spending were missing from the statement, which was intended to give the public an idea of possible changes over the next few years.

Suggestions of tax breaks had drawn criticism from some officials wary of further denting the government’s coffers.

Tax revenues in the fiscal year starting next week are already expected to slump to 46.82 trillion yen ($352.6 billion) due to the weak economy, the lowest level since fiscal 1987/88.

Takenaka recently said tax cuts could invigorate Japan’s businesses, although he toned his message down on Friday to say the government should focus on boosting the economy in the next two years and that any tax break should be temporary.

Buying more time for the government, he said a detailed package of tax reforms would be unveiled in June following further council discussions.

With monetary policy already at its limit and the government trying to rein in spending, analysts say tax reforms may be a chance for lawmakers to finally show themselves capable of engineering an economic recovery.

To strengthen the supply side, it’s vital the corporate tax gets reduced, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

The government’s gross domestic product data for the October-December period showed capital expenditure tumbled 12 per cent, the steepest quarter-on-quarter drop ever. Analysts say it could fall for several more months.

Industrial Bank of Japan economist Yoshimasa Maruyama was even more sceptical about what tax cuts could achieve.

There’s no guarantee that tax cuts will make consumers and companies spend and invest more than they do now, he said.

Businesses are now in the process of cutting back, so they’ll most likely use profits to offset debt.

He agrees with the government tax panel, a separate and more academic group of tax experts, which believes tax reforms should aim to solve inequities in the tax system while maintaining the same level of revenue.

The government tax panel has said any combination of tax reforms should be neutral on revenue. But Takenaka said lower revenues could be matched by controlled fiscal spending.

Finance Minister Masajuro Shiokawa has failed to mend the policy rift between the two government groups working on tax reforms.

Earlier this week, he called the Council on Economic and Fiscal Policy’s headlong drive toward tax cuts “out of line”, asking government tax panel chairman Hiromitsu Ishi to attend Friday’s council meeting to make sure it heeded other advice.

Ishi tried to play down the policy rift by saying he found no problem with the council’s discussions.

The lack of policy consensus is nothing new when it comes to taxes.

A tax hike on cigarettes and low-malt beer had been proposed in December, but was put on the backburner due to opposition from some politicians who said it was an unfair assault on industry and consumers.

And a new corporate tax system due to take effect in the next fiscal year, despite being a compromise proposal, is still the subject of angry discussions among policymakers and business leaders.

The new system is set to allow firms to offset taxable profits at subsidiaries with losses at others, allowing some firms to avoid paying taxes altogether. But firms using the system would have to pay an add-on tax of two per cent over the next two years.—Reuters