Japanese local authorities levied pro forma standard tax on around 20,000 companies in fiscal 2020, around a third less than the peak in fiscal 2006, government data showed Sunday.
The Ministry of Internal Affairs and Communications, which compiled the data, believes that a significant number of firms may have reduced their capital to under 100 million yen ($691,000), a threshold for imposition of the tax, to evade it, officials said.
The ministry plans to devise countermeasures after assessing the situation, but lowering the threshold or expanding the tax to small- and medium-sized businesses are not expected to be included among the measures, according to the officials.
Some prefectures have proposed that the tax should be levied on a wide range of major companies by using other criteria in addition to capitalization, but such moves are likely to meet resistance from the business circle.
Under the pro forma standard, introduced in fiscal 2004, corporate tax is levied on the basis of such nonprofit norms as the number of employees, combined wages and size of capital. The method allows tax to be collected even from companies operating in the red.
The tax provides stable revenue for prefectural governments even during economic downturns, but it serves as a further blow to companies that have been unprofitable.
According to the ministry, a total of 19,989 companies, or around 0.8 percent of all firms nationwide, were subject to the tax in fiscal 2020.
The figure was a drop from fiscal 2006 in both absolute numbers and proportion, when 29,618 companies, or 1.2 percent, were subject to the tax.
Tax revenues also fell to around 1.76 trillion yen in fiscal 2020 from approximately 1.91 trillion yen in fiscal 2017, when comparable data were available.
While dissolutions and bankruptcies are believed to partly account for the decrease in the number of companies with capital exceeding 100 million yen, 59.4 percent of 789 randomly selected companies exempted from the tax in fiscal 2012 to 2020 were found to have reduced their capital to 100 million yen or less.
Recently, major Japanese travel firms JTB Corp. and H.I.S. Co. have announced capital reductions, which are in themselves not illegal and can be for a variety of reasons, such as making up for a deficit.