formation of social capital, to utilize private know-how relating to corporate management, to improve management efficiency, etc., and preferential loan and tax measures are taken by means of the Private Utilization Law (Law for extraordinary measures concerning promotion of the construction of specific facilities by utilizing the abilities of private enterprise: enacted in 1986 with a limit of 10 years).
3. Local Allocation Tax
Local allocation tax refers to tax where part of the income from national taxes is transferred to local government to enable the national government to promote a balanced revenue source for local finance, based on the Local Allocation Tax Law. It does not mean a proper tax levied on the private sector. As local allocation tax forms the nucleus of the local resources coordination system, a fixed percentage (32% since 1966) of income tax, corporate tax and liquor tax (called the three national taxes) is allocated as a general revenue source for local governments according to fixed standards. However in 1989, in order to supplement the drop in local tax accompanying establishment of consumption tax (national tax), an amendment was introduced whereby, in addition to establishing a consumption transfer tax, 24% of consumption tax revenue, excluding transfer tax, and 25% of tobacco tax revenue were added to local allocation tax as a measure for ensuring revenue source by suppressing subsidy rates to local government.
The total amount of allocation tax that should be allocated annually is the sum of the amount based on estimated income from the three national taxes in the relevant year and the amount calculated based on income performance up to the preceding year. If a supplementary budget for the three national taxes, etc., is drawn up during the year, the estimate of allocation tax is also automatically revised. As for the scale of allocation tax, it accounts for around 20% of expenditure from the general accounts of the national government, and around 17% of the entire revenue of local government, and it is distributed between prefectures and municipalities at a ratio of 55:45.
Local allocation tax is divided into ordinary allocation tax and special allocation tax, and as a rule, 94% of the total amount is allocated as ordinary allocation tax and the remaining 6% as special allocation tax.