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Politics

Party's over: Japan to end entertainment tax break for big companies

Deduction for meals and gifts has done little to boost spending

The neon lights of Ginza: Nearly 30 years on from the peak of Japan's stock market, corporate entertainment spending growth has turned sluggish. (Photo by Yuta Asomura)

TOKYO -- Japanese policymakers will seek to end a tax deduction for big corporations' entertainment spending after the five-year-old incentive was found to have little noticeable economic benefit, Nikkei has learned.

Under a proposal to be considered by the government and ruling coalition, the deduction would end at the close of the current fiscal year next March. Revenue freed up by this move would be channeled into other programs, such as tax breaks for investment.

While the entertainment deduction was meant to circulate corporate money into the main-street economy, it has shown little effect at a time of widespread cost cutting.

Corporate entertainment spending rose just 0.8% from fiscal 2014, when the incentive was introduced, to fiscal 2017, reaching 560.3 billion yen ($5.13 billion), National Tax Agency data shows.

Work-related efforts to promote consumer spending have also yielded mixed results. The Premium Friday campaign, introduced to much fanfare in 2017 as a way to cut long working hours, disappointed many bars and restaurants that had hoped to see an increase in customer traffic.

Under the tax reform proposal, the deduction would remain in place for companies with 100 million yen or less in capital, which account for 99% of the total.

The entertainment deduction is limited in scope. Big corporations can deduct up to half of their annual entertainment spending from their taxable income, with certain restrictions. The cost of a meal as object of tax deduction is over 5,000 yen, or $45, per person.

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