Moves within the central government to revise the Local Tax Law in response to the Tokyo Metropolitan Government's proposal to tax banks have subsided due to concerns that it would affect efforts toward decentralization, government sources said Sunday.
After Tokyo Gov. Shintaro Ishihara unveiled his tax, which would be levied on major banks operating in the metropolis, some Finance Ministry officials indicated the Local Tax Law might be revised to counter the move.
If the idea to revise the law is scrapped, the central government would lack a legal means of stopping Ishihara's tax plan, observers said.
According to the sources, the Home Affairs Ministry had been reluctant to endorse a legal revision from the outset. The law provides the legal pretext for local governments' right to taxation and is thus the fiscal backbone of autonomy.
Proponents of a legal revision voiced fears that other prefectures might follow Tokyo's example, and also pointed out that the bank tax was unfair because it only affects a certain group of firms.
But with legislation promoting decentralization to take effect in April, supporters of change decided it was impossible to revise the tax law now.
Another reason for forgoing legal changes is the recent comment by Hiroshi Kato, chairman of the government's Tax Commission, that a blanket, local tax that would tax businesses based on such criteria as their size and number of employees could be introduced nationwide as early as fiscal 2003, the sources said.
If such a tax is implemented, it would not have the inequalities posed by Tokyo's tax proposal, they said.