Japan tax revision targets corporate cashpile to spur spending, 5G investment

Tax chief says 5G taxation reflects national security viewpoint. (AP)
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Updated 12 December 2019

Japan tax revision targets corporate cashpile to spur spending, 5G investment

  • Japan Inc. hoards record cashpile, wary of spending amid risks
  • Tax cuts aimed at promoting 5G investment to cope with China

TOKYO: Japan unveiled tax measures on Thursday aimed at encouraging companies to spend their cash piles on start-ups and other investments and stimulating a slowing economy, while also helping firms to compete with China’s advance in 5G technology.
The annual tax revision for fiscal 2020, formally decided by the ruling Liberal Democratic Party (LDP) and its coalition ally Komeito party, focused on steps to encourage Japanese firms to spend their internal reserves of over 460 trillion yen ($4.23 trillion), lawmakers said.
For years Japanese companies have been sitting on a record cash-pile as they remain wary about boosting wages and investment.
Japan’s economy grew at an annualized rate of 1.8% in July-September, backed by capital spending and domestic demand, but analysts expect growth to slow in the current quarter as the Sino-US trade war and the national sales tax hike likely weighed on the world’s third-largest economy.
Weak business spending would be another blow to Prime Minister Shinzo Abe’s stimulus policy, or “Abenomics,” which is aimed at stoking a cycle of higher wages, household and corporate incomes and spending.
The new scheme will allow a 15% tax break to mobile phone carriers and other businesses investing in 5G infrastructure to help domestic firms compete with China’s strides in the next-generation communications network.
The roll-out of 5G networks, with speeds fast enough to download a movie to a smartphone in seconds, has raised security concerns in the United States over equipment for the upgrade supplied by Chinese telecommunication firm Huawei.
“5G taxation marks the beginning of a new era as information technology greatly includes the national security point of view,” LDP tax panel Chief Akira Amari told reporters after a meeting with ruling bloc lawmakers approved the tax revision.
“With this tax revision, I believe we managed to raise a flag so that Japan can lead America and EU on 5G development,” Amari said. He made no mention of China.
Japanese companies eligible for the tax incentive will include mobile phone operators, and those preparing 5G networks for smart factories and smart agriculture using artificial intelligence in rural areas.
The overall tax revision is expected to have no big impact on annual tax revenue, Amari added.
The revision follows Abe’s announcement last week that the government will roll out fiscal stimulus worth 13.2 trillion yen in spending.
The tax revision for the next fiscal year also includes preferential treatment for companies investing in businesses focusing on innovative technologies.
The new scheme will also allow businesses that invest 100 million yen or more in start-ups established less than a decade earlier, to deduct 25% of that investment from taxable income.


Huawei: Smartphone chips running out under US sanctions

Updated 10 min 53 sec ago

Huawei: Smartphone chips running out under US sanctions

  • Huawei is at the center of US-Chinese tension over technology and security
  • Washington cut off Huawei’s access to US components and technology last year

BEIJING: Chinese tech giant Huawei is running out of processor chips to make smartphones due to US sanctions and will be forced to stop production of its own most advanced chips, a company executive says, in a sign of growing damage to Huawei’s business from American pressure.
Huawei Technologies, one of the biggest producers of smartphones and network equipment, is at the center of US-Chinese tension over technology and security. The feud has spread to include the popular Chinese-owned video app TikTok and China-based messaging service WeChat.
Washington cut off Huawei’s access to US components and technology including Google’s music and other smartphone services last year. Those penalties were tightened in May when the White House barred vendors worldwide from using US technology to produce components for Huawei.
Production of Kirin chips designed by Huawei’s own engineers will stop Sept. 15 because they are made by contractors that need US manufacturing technology, said Richard Yu, president of the company’s consumer unit. He said Huawei lacks the ability to make its own chips.
“This is a very big loss for us,” Yu said Friday at an industry conference, China Info 100, according to a video recording of his comments posted on multiple websites.
“Unfortunately, in the second round of US sanctions, our chip producers only accepted orders until May 15. Production will close on Sept. 15,” Yu said. “This year may be the last generation of Huawei Kirin high-end chips.”
More broadly, Huawei’s smartphone production has “no chips and no supply,” Yu said.
Yu said this year’s smartphone sales probably will be lower than 2019’s level of 240 million handsets but gave no details. The company didn’t immediately respond to questions Saturday.
Huawei, founded in 1987 by a former military engineer, denies accusations it might facilitate Chinese spying. Chinese officials accuse Washington of using national security as an excuse to stop a competitor to US tech industries.
Huawei is a leader among emerging Chinese competitors in telecoms, electric cars, renewable energy and other fields in which the ruling Communist Party hopes China can become a global leader.
Huawei has 180,000 employees and one of the world’s biggest research and development budgets at more than $15 billion a year. But, like most global tech brands, it relies on contractors to manufacture its products.
Earlier, Huawei announced its global sales rose 13.1 percent over a year ago to $65 billion in the first half of 2020. Yu said that was due to strong sales of high-end products but gave no details.
Huawei became the world’s top-selling smartphone brand in the three months ending in June, passing rival Samsung for the first time due to strong demand in China, according to Canalys. Sales abroad fell 27 percent from a year earlier.
Washington also is lobbying European and other allies to exclude Huawei from planned next-generation networks as a security risk.
In other US-Chinese clashes, TikTok’s owner, ByteDance, is under White House pressure to sell the video app. That is due to fears its access to personal information about millions of American users might be a security risk.
On Thursday, President Donald Trump announced a ban on unspecified transactions with TikTok and the Chinese owner of WeChat, a popular messaging service.