JETRO Invest Japan Report 2021
Chapter2. Japan's Business Environment and Foreign-Affiliated Companies Section2. Improving the Business Environment in Japan
Acceleration of Digitalization

Six Bills for Promoting Digitalization Established

Six related bills of digital promotion were enacted in May 2021 (Chart 2-6). The bill to establish the Digital Agency, which will be the key organization to accelerate the shift of administrative procedures to online, etc. The Digital Agency was established on September 1, 2021 with about 600 members. It has hired many people from the private sector to tackle issues such as the slow digitization of government services and the integration of national and local government systems. The enacted bills include the Basic Act on the Formation of a Digital Society, which formulates the basic policies of IT policies, and the Act on the Arrangement of Related Acts for the Formation of a Digital Society, which includes the revision of the personal information protection system and administrative procedures requiring a seal.

Chart 2-6: Outline of Six Digital Reform Bills
Act on the Establishment of the Digital Agency	Established in September 2021 with about 600 members
Basic Act on the Formation of a Digital Society	Formulate a basic policy for the government's IT policy with the aim of strengthening Japan's international competitiveness and improving convenience for the people.
Act on Deposit and Savings Account Registration for Receiving Public Money	Establish a system that allows for advance registration of deposit accounts for receiving benefits.
Act on Deposit and Savings Account Management	Create a system that links accounts and My Number to enable account inquiries at the time of a disaster or inheritance
Act on the Arrangement of Related Acts for the Formation of a Digital Society	Integrate the three laws on Personal Information Protection, which are enacted respectively for the private sector, administrative organs, and independent administrative agencies. Remove seal requirements in administrative and private procedures.
Act on the Standardization of Local Government Information Systems	Promote the unification of the administrative systems between the national and local governments.

Source: Various press materials

Furthermore, in November 2021, the Cabinet Secretariat held the first meeting and took the first step toward the realization of the "Digital Garden City State Concept," an initiative to solve local challenges by utilizing digital technology and close the gap between local and urban areas. Digitization is an important field related to the fundamentals of all industries, not only the manufacturing but also service and agriculture, in order to solve social issues that Japan faces, such as declining birthrate and aging population, regional disparities, and aging infrastructure. In the future, the government will promote the unification of the administrative systems of the national and local governments, as well as speedup of the procedures of various benefits and introduction of online administrative procedures. In addition, the government will work to improve convenience for the public by deregulating online medical treatment and digital education.

Establishment of Digital Transformation (DX) Investment Promotion Tax System

The Ministry of Economy, Trade and Industry has included the creation of a digital transformation (DX) investment promotion tax system in the fiscal 2021 tax reform in order to promote corporate transformation using digital technology. The tax system allows for the selection of a tax credit of 3% of the acquisition price (5% if the data is to be linked with businesses outside the group) or a special depreciation of 30% for digital-related investments utilizing cloud technology required to realize digital transformation. The application period is until March 31, 2023, and the amount of tax credit will be up to 20% of the income tax for the current fiscal year in total with the tax credit under the Carbon Neutral Investment Promotion Tax Credit Scheme described below (Chart 2-7).

Chart 2-7 Investment Promotion Tax Systems for Carbon Neutrality and Digital Transformation (DX)
Tax system	Requirements	Eligible Facilities	Details of measures
Investment Promotion Tax System toward carbon neutrality	1.Introduction of production facilities for products with significant decarbonization effects	Equipment used exclusively in the production of products such as compound power semiconductors and fuel cells that are expected to contribute to the expansion of new demand with significant greenhouse gas reduction effects. *The target facilities are machinery and equipment.	Tax credit of 10% or special depreciation of 50%
Investment Promotion Tax System toward carbon neutrality	2.Introduction of facilities that achieve both decarbonization of production processes and increase of added value	Equipment required for planning to significantly improve carbon productivity (value-added amount/energy-originated CO2 emissions) at business sites, including the introduction of new energy management facilities () The target facilities are machinery and equipment, furniture and fixtures, building fixtures, and structures. The introduction of the facilities improves the carbon productivity at the business site by 1% or more.	[Improvement in carbon productivity and corresponding measures] 10% or more improvement within 3 years: Tax credit of 10% or special depreciation of 50% 7% or more improvement within 3 years: Tax credit of 5% or special depreciation of 5%
Digital Transformation (DX) Investment Promotion Tax System	Digital (D) requirements Linking and sharing of data (linkage of data owned by other entities or data newly obtained by business operators using sensors with existing internal data) Utilization of cloud technology Acquiring of the certification examined by the Japan Information-technology Promotion Agency (DX certification)	Software Deferred assets Machinery and equipment Furniture and fixtures	Tax credit of 3% (5% for data linkage with external parties) or, Special depreciation of 30%
Digital Transformation (DX) Investment Promotion Tax System	Corporate Transformation (X) Requirements Reduction of product manufacturing costs by 8.8% or more, etc. Establishment of targets for productivity improvement and sales growth Setting of targets for productivity improvement and sales growth Within the plan's effective period, an ROA increase by 1.5 percentage points from the 2014-2018 average as the base. Within the plan's effective period, sales growth rate that exceeds the growth rate of the industry over the past five fiscal years by 5 percentage points or more. Total investment must be 0.1% or more of sales.

[N.B.]1. The maximum amount of investment eligible for investment measures under the Carbon Neutral Investment Promotion Tax System is 50 billion yen. 2.The maximum amount of the total capital investment under the Digital Transformation (DX) Investment Promotion Tax System is 30 billion yen. 3.The tax credit is up to 20% of the corporate tax in the sum of the investment promotion tax system for carbon neutrality and the digital transformation (DX) Investment Promotion Tax System.
Source: "Fiscal 2021 Tax Reform" (Ministry of Finance), and materials from the Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry

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