Tokyo Gov. Shintaro Ishihara on Wednesday formally presented the metropolitan assembly's steering committee with a bill that would impose a temporary tax on all funds held by banks operating in the metropolis. Despite warnings by central government ministers that the tax could have a negative impact on the nation's economy, the bill is expected to be passed since most of the parties in the assembly favor it. The main voting blocs in the assembly have already formally voiced their support for the plan. and with the Tokyo Metropolitan Assembly election slated for July, it is unlikely any amendments will be added to the popular ordinance, which will be debated during the regular session beginning Feb. 23. The measure will impose a 3 percent tax on the gross profits of major banks for five years. "I'm not going to back down," Ishihara said after submitting the draft bill to a committee of assembly members. "Not a single small bone in the plan is going to be changed." In order to reflect public opinion, steering committee members decided to hold a public hearing prior to the start of the assembly session. "We want to hear opinions from both sides and give all perspectives full consideration," said Chuichi Kawashima, an LDP member and chairman of the committee. The bill will be voted on March 30, just in time for it to be introduced in fiscal 2000, which starts two days later. The tax, which would be levied against banks with assets of 5 trillion yen or more, would bring 110 billion yen a year for five years to Tokyo's cash-strapped coffers, according to local officials. An estimated 30 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, but given its special corporate status, its tax rate would be only 2 percent. While Cabinet ministers have admitted the tax is legal, they have asked the metropolitan government to consider the impact it will have, not just on banks but on other municipal governments. The tax may eat into the revenues of other local bodies because banks will be able to claim the Tokyo tax as a nontaxable overhead. "We cannot say that the tax will have no affect on other local entities," said Yuji Tsukada of Tokyo's Bureau of Taxation. "But because banks are reporting such low net profits already, the damage will be minimal." The Japanese Bankers Association is reportedly considering suing the metropolitan government on the grounds that the tax ordinance violates the principle of equality under the law. Mikio Aoki, chief Cabinet secretary, told Wednesday's news conference that Kosuke Hori, home affairs minister, will meet with Ishihara next week in an attempt to dissuade him from pursuing the plan. Speaking before the House of Representatives Budget Committee, Bank of Japan Gov. Masaru Hayami warned that the scheme could deal a blow to banks, which have been making efforts to become internationally competitive. 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 -- measured by either sales or number of employees. Many of the nation's banks have not paid taxes in recent years as they continue to write off nonperforming loans. The strategy involves posting reserves for expected future losses on bad loans in their balance sheets. The more they pad their loss reserves, the smaller final profits become. But the metropolitan government's plan calls for taxing banks based on gross revenues, before they subtract personnel and operating expenses and bad loan disposal costs from their earnings. Due to the current business slump, the central government's tax panel has been reluctant to impose this tax, which would force money-losing firms to pay. The tax has been criticized for targeting a small group of banks that are trying to shed their bad debts. While applauding the plan as a demonstration of local bodies' right to tax, Yukio Noguchi, a professor at the Research Center for Advanced Science and Technology at the University of Tokyo, questioned the fairness of the tax. Ishihara has repeatedly justified the narrowness of the tax target by saying that banks are receiving public funds to help cover bad loans. "This could be interpreted as a sanction against banks for being on the receiving end of a national measure," Noguchi said.
