Tokyo Metropolitan Gov. Shintaro Ishihara proposed Monday that the metropolitan government start imposing a 3 percent tax on gross profits of large banks operating in Tokyo. The announcement prompted immediate protests from the Japanese Bankers Association, which issued a statement calling the plan "extremely abrupt." The banks also said they are "absolutely against" the plan. The metropolitan government, which is shouldering a massive fiscal debt, said 30 banks headquartered in Tokyo and with a fund volume of 5 trillion yen or more will be subject to this plan. The proposal will be submitted to the Tokyo metropolitan assembly later this month. If passed, the plan will begin April 1 and be in place for five years. Thirty financial institutions would be affected, including nine city banks such as the Bank of Tokyo Mitsubishi and Dai-Ichi Kangyo Bank, eight regional banks and six trust banks. The list also includes the Bank of Japan. The proposal comes as banks themselves are scurrying to get out from under mountains of debt. In fact, many of the nation's banks have not paid taxes in recent years as they continue to write off nonperforming loans by posting reserves for expected future losses on bad loans in their balance sheets. The more they pad their loss reserves, the smaller their final profits become. But the metropolitan government's plan calls for taxing banks based on gross revenue -- before they subtract personnel and operational expenses and costs for bad-loan disposal from their earnings. Tokyo is the first local government to announce a plan to tax banks based on the so-called "Gaikei hyojun kazei," the concept of taxing corporations based on their size, such as sales and the number of employees. The Tokyo government's assertion that the proposal is backed by a special clause in the Local Tax Law did not placate the banking industry. The plan "lacks the fairness of tax burdens," the statement said, adding that it will hurt their competitiveness in an increasingly globalizing industry.
