Tax reform on carbon neutrality

Greenhouse gases, which are the cause of climate change, are emitted in connection with economic activities and daily life. Therefore, this time, I will explain the policy promoted by the government and the tax system revision for the realization of carbon neutrality.

1. background

(1) The problem of global warming

Greenhouse gases including carbon dioxide, which is a cause of global warming, require a certain amount as a layer surrounding the earth, but if this increases excessively due to the artificial use of fossil fuels, the sunlight reflected from the earth will be emitted. It will not pass through this layer and will be reflected back to Earth. As a result, the temperature of the earth rises, resulting in global warming.

(2) What is 2050 carbon neutral?

It means that the total is virtually zero by subtracting the amount absorbed by tree planting, forest management, etc. from the amount of greenhouse gas emissions including carbon dioxide. To achieve zero emissions, the government has created a tax system to encourage companies and others to invest in decarbonization.

2. Investment promotion tax system for carbon neutrality

In the tax reform in 2021, toward the realization of the policy “2050 carbon neutral” that will reduce greenhouse gas emissions to virtually zero by 2050, (1) equipment for producing products with high decarbonization effect and (2) production process Tax incentives have been established to support companies investing in the latest equipment to significantly save energy and decarbonize such products.

Regarding the target equipment, the image of the product with high decarbonization effect in (1) is energy-saving semiconductors that reduce CO2 emissions, next-generation lithium-ion batteries, etc. (demand development product production equipment). (2) includes investment in machinery and equipment that significantly improves carbon productivity, equipment and fixtures, equipment attached to buildings, structures, and equipment for switching to renewable energy such as wind power generation (equipment for improving production process efficiency).

Regarding the content of tax incentives, tax credits of 10% of the acquisition price or special depreciation of 50% will be selectively applied to companies that make advanced investments with a high decarbonization effect. In addition, for ②, a tax credit of 5% of the acquisition price (10% if it contributes significantly to the reduction of greenhouse gases) or a special depreciation of 50% is selectively applied.

The maximum total amount of capital investment covered is 50 billion yen. The tax credit is limited to 20% of the corporate tax amount for the current period, including the digital transformation investment promotion tax system.

When applying, from the enforcement date of the revised law of the Industrial Competitiveness Enhancement Act (August 2, 3rd year of Reiwa) to March 31st, 6th year of Reiwa, the certified energy utilization environmental load reduction project adaptation plan will be the competent minister. After submitting and receiving certification, it is necessary to acquire the target equipment and use it for business.

3. Other related tax systems

(1) Special provisions for the maximum deduction for loss carryforwards

If a company that has a deficit due to the impact of the Corona Stigma makes an investment based on the business adaptation plan of the Industrial Competitiveness Enhancement Act, the maximum deduction limit for the deduction carried forward is up to 100% within the range of the certified investment amount for up to 5 years. You can receive a special case to raise it. In addition, small and medium-sized enterprises, etc. are already allowed to carry forward deductions of losses up to 100% of their income amount under the current system, so this system is practically targeted at other corporations.

(2) Review of R & D tax system

For companies that increase R & D investment even if their sales amount has decreased by 2% or more compared to before the Corona disaster, as a two-year time limit, the upper limit of this tax credit will be raised to 30% of the corporate tax amount. The deductions have also been reviewed to support R & D investment motivation.

4. Challenges to carbon-neutral tax system

Subsidies and tax incentives for companies that have cooperated in reducing or preventing environmental pollution by installing new carbon-neutral equipment are general policies, but there is also the issue of high policy costs.