Japan considering tax cuts for pandemic-hit railway firms

The transport ministry plans to support railway companies’ efforts to cut personnel costs and improve their financial health at a time when travel demand has been plummeting due to the pandemic.

The ministry will reduce fixed-asset tax on ticket machines and other facilities and equipment from fiscal 2022 to help railway companies maintain services on their local lines, sources familiar with the matter said. It has included the measure in its tax system reform requests for the fiscal year starting in April next year.

Railway operators seeking the preferential tax treatment will need to submit capital spending plans to the ministry, with the tax cuts applying to such items as equipment installed on the underside of trains to detect parts of the tracks requiring repairs, and platform screen doors and signal systems for ensuring safety for trains without conductors, on top of ticket machines, according to the sources.

Fixed-asset tax will be reduced over 10 years for facilities and equipment introduced in fiscal 2022 and fiscal 2023.

For Japan Railways Group firms and other major railway operators, the tax will be three-fifths of the original level for the first five years and four-fifths for the following five years. The tax will be reduced by larger margins for smaller operators — by half for the first half of the 10-year period and by a third for the second half. The deeper cuts will also apply to major railway companies’ local lines with average daily passenger traffic of 4,000 or fewer, which is considered to be a break-even point, the sources said.

Railway companies normally use profits from train operations in densely populated areas to make up for losses from local lines.

But demand for railway services has plunged even in urban areas amid the spread of COVID-19, with many companies allowing employees to work from home amid the health crisis. It is estimated that the number of passengers will not rise back to prepandemic levels even after the crisis is brought under control.

West Japan Railway Co. , one of the six passenger service firms of the JR Group, is set to cancel 127 train services through a timetable revision in October in order to improve its balance sheet. Other railway operators may follow suit, industry sources said.

As part of its emergency proposals in August, the National Governors’ Association asked the Japanese government to consider measures to help enable railway operators avoid service reduction.