The Japanese government is mulling a new tax incentive scheme aimed at breaking the long-standing stagnation in industrial restructuring and driving deep integration across sectors. According to sources familiar with the matter, the core of the policy is to allow companies to indefinitely defer taxes on gains from the sale of non-core assets. Under current regulations, such asset disposal gains are typically subject to a corporate tax rate of around 30%. However, under the new proposal, companies can enjoy tax deferral as long as they commit to reinvesting the funds in M&A projects related to their core businesses within the next few years. The proposal is expected to be officially submitted by the end of this month as part of the tax reform request, with details to be negotiated before the final tax reform package is approved at the end of the year.

This move directly targets the long-standing issue of inefficient capital allocation among Japanese companies. Due to the high tax costs associated with asset divestment, many large corporate groups have accumulated a massive amount of non-core businesses that are difficult to exit. Official research data shows that about 65% of the invested capital in Japanese companies remains trapped in inefficient businesses that fail to cover their cost of capital, severely dragging down overall investment expansion and long-term value creation. The design of the new policy draws on Germany's successful experience in the early 2000s, when the country significantly reduced related tax burdens, successfully helping companies break up complex cross-shareholding networks and achieve flexible adjustments in their business structures.

Although the Japanese government introduced tax rules for business spin-offs and partial spin-offs in 2017 and 2023, the actual use of these policies for asset divestment has been limited, as companies often prioritize maintaining group size and safeguarding employment. The tax incentives now being considered are seen as a crucial breakthrough to break this deadlock, aiming to guide companies to shift from simply pursuing scale expansion to focusing on cultivating core competitiveness.

As policy expectations heat up, Japan's M&A market has already shown robust vitality. Data shows that the total value of M&A deals involving Japanese companies doubled year-on-year last year, hitting a record high of $353 billion, with pure business sale transactions reaching $44.7 billion. The market generally expects that if the tax incentive policy is successfully implemented, it will further awaken a large amount of dormant assets, accelerate the clearance of inefficient businesses by Japanese companies, and the scale of related M&A transactions is expected to continue to climb on this basis.