Recently appointed Prime Minister of Japan Shinzo Abe is very likely to support moves to increase corporate profits via changes in the tax law related to depreciation.   At present the maximum depreciation allowable on investment assets is 95%. It has been argued for years that this fact reduces the competitiveness of Japanese firms overseas. China, the U.S.A and Britain fore example, to mention just a few countries, all accept 100% depreciation on the book value of assets.

It would seem that the focus of this tax change at this time is to support mainly the manufacturing industry. A solid argument exists that this change to the tax system is needed if Japan wishes to prevent manufactures taking their factories off shore. We can not be sure if the change will take place for certain and even if it does whether or not the initial focus on supporting manufacturing will flow over to other assets investments in Japan. To us the real estate investors of Japan we can but live in hope that a) the tax change does come in allowing manufacturers to depreciate their plant and equipment assets 100%. And that b) this change flows over to real estate investors.

One indication that change will in fact come to pass was a comment by Mr. Takao Kitabata, administrative vice minister several weeks ago. According to Mr. Kitabata these changes are indeed high on the priority list of tax reforms for the financial year 2007.