In October 2008, the central government started a system of siphoning more than 40 percent of revenue from corporate enterprise taxes levied by prefectural governments and redistributing the money to local governments whose financial footing was weak. The redistribution is done by the internal affairs ministry.
Whether to continue or expand this system has become an issue in discussions of tax reform for fiscal 2014. The central government should realize that this system is an emergency measure and should try to work out a permanent system that will contribute to the stabilization of revenues for local governments and to decentralized administrations.
The redistribution system was introduced because there is a great difference in the amount of tax revenue between urban and rural local governments. Some areas have many large enterprises that bring a great amount of tax revenue. Others do not have such benefits. For example, nearly 40 percent of the nation's major enterprises and 30 percent of employees are concentrated in Tokyo.
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