The Diet enacted a consolidated tax law Wednesday under which the losses of one group firm can be offset by the profits of another.

The House of Councilors approved the bill to revise the corporate tax law during a plenary session, following its approval by the House of Representatives on May 31.

The new tax system will be introduced on Aug. 1.

Companies that want to incorporate the new system into their earnings reports for fiscal 2002 will be required to apply with the Finance Ministry by the end of September.

The system will lessen the tax burden on groups that have loss-making companies, making it easier for them to spin off unprofitable firms and operations.

Under the system, in conjunction with tax structures that include spinning off companies, firms are expected to be encouraged to reorganize.

Just how many companies will actually apply for the system by the end of September is still unclear, however, as the ministry, which is looking to make up for tax revenue shortfalls, will levy a 2 percent surtax on top of the 30 percent corporate tax for companies that use the new system.

The move has already made many companies wary of using the system in its first year, while business leaders are expected to step up their criticism of the surtax in the months to come.

Companies must adopt the new system for all wholly owned subsidiaries, and will be responsible for reporting on their earnings and paying taxes on their behalf.

Once they adopt the consolidated taxation system, companies will not be able to go back to paying taxes on an unconsolidated basis.

New regulations have been incorporated into the new system to prevent companies from abusing it for tax-evasion purposes.