TOKYO (Nikkei)–Miyagi Prefecture has decided to waive local taxes for five years for companies setting up shop in areas affected by the March 2011 earthquake and tsunami.
The prefectural government plans to create two types of tax-protected special zones for reconstruction. The first will encompass areas that have lost many jobs because of quake-damaged production facilities and swept-away factories and stores.
Companies moving into this type of zone will be exempt from corporate taxes for five years. But the measure offers few benefits, since newcomers often initially bleed red ink and thus do not pay corporate taxes in the first place. So the prefecture will exempt firms from local business and fixed-asset taxes for five years as well as drop real estate acquisition taxes levied when buying land for factories.
Although this will slash tax revenues for the prefecture and municipal governments, the reduction will be offset by special tax allocations. The burden will thus be shifted to the central government.
The second type of special zone will target areas that have suffered little direct damage but are home to commuters as well as many businesses that have daily dealings with disaster areas designated as special reconstruction zones. Here, corporate taxes may not be waived, but companies will enjoy sweeteners, like immediate depreciation of capital spending and tax redemptions on R&D.
Full exemption from corporate and local taxes will be limited to new firms in disaster zones. But businesses already in these areas will receive a 10% payroll tax deduction when employing local residents and will also be allowed to immediately depreciate capital spending.
The prefecture and municipalities hope to attract seafood processors to coastal areas and to lure automakers, autoparts firms and others to inland locations. They will seek approval from the central government for the proposed reconstruction zones as soon as next month.
(The Nikkei Jan. 7 morning edition)