A trade ministry study panel on Wednesday began considering revisions to tax incentives on corporate research and development and capital investment.

Tokyo University professor Akira Goto called for an overhaul of the tax deduction system in the coming fiscal year, saying, "The Japanese system has become outdated given the huge tax incentives started in the United States, Europe and China."

The current system, established in the 1960s when Japan was enjoying rapid economic growth, allows companies to deduct part of their R&D costs in a given fiscal year if they outpace those in the preceding year.

However, firms do not necessarily increase R&D investment in a deflationary economy, making this kind of tax incentive irrelevant, Goto said in his presentation as a member of the Ministry of Economy, Trade and Industry panel.

The second open-door meeting of the study group also reviewed corporate taxation on capital investment as a decline in business spending on facilities and equipment is feared to affect Japan's industrial competitiveness.

Members agreed to consider extending the incentives dedicated to small and midsize companies to cover large corporations, and to encourage the updating of facilities and equipment.