According to Nikkei News, the Japanese government intends to implement a 10-year tax incentive program to promote large-scale production in five areas, including electric vehicles and semiconductor equipment.
These measures will be incorporated into the fiscal 2024 tax reform framework, which is expected to be finalized this week. The incentives will focus on domestic strategic production and form part of a series of favorable policies, with the extent of the benefits proportional to the production and sales volume of eligible products.
Other areas eligible for tax incentives include electric vehicle storage batteries, sustainable aviation fuels, green steel produced using renewable energy, and green chemicals made from plants and recycled waste.
The tax incentives will cover subsidies of 400,000 yen (approximately $2,749) per electric vehicle, 30 yen per liter of sustainable aviation fuel, and 20,000 yen per ton of green steel.
For the semiconductor industry, companies will receive up to a 20% reduction in corporate income tax each fiscal year, with the cap set at 40% for other industries. There will be a 30% deduction for income from the transfer and licensing of patents and copyrights, applicable to copyrights and patents obtained from April 2024. The incentive measures will expire within seven years after April 2025.
Unused tax incentives due to losses can be carried forward to the next reporting period, with a maximum extension of three years for the semiconductor industry and four years for other sectors.
These incentive measures will last for 10 years, starting from the approval of the corporate business plan. Companies will be required to submit their business plans by the end of the fiscal year 2026. Additionally, policymakers have outlined the specifics of the "Innovation Box" tax incentives to attract more research and development centers to Japan.
The Japanese government is also in the process of modifying the calculation formula for the prefectural corporate tax system, which levies taxes based on the size of the company, with the primary goal of preventing companies from reducing taxes by lowering capital amounts.
Legislators will extend the deadline for applying for tax incentives to facilitate the transfer of small businesses to the younger generation, pushing the current deadline from March 2024 to March 2026.
