1. Background of 2003 Tax Reform 1) Large depression of Local Enterprise Tax revenues 2) To Stabilize of the fundamental tax supporting Decentralization * Revenues from Local Enterprise Tax \6.4 trillion (1991) → \3.5 trillion (2002) * Shares of Local Enterprise Tax to the amount of prefectural revenues 14.1% out of \45 trillions (1991) → 6.7% out of \51 trillions (2002) 3) Realization of the tax burden according to the benefit 4) Realization of a thin, wide, fair tax burden for Corporations 5) Realization of the taxation rewarded if it tries hard * The ratio of a deficit corporation (= no tax burden of Local Enterprise Tax) 68.1% (1,680,466 out of 2,468,939) (2002) * Only 1.2% of 2.47 millions Corporations pay 80.7% of Local Enterprise Tax Summary of 2003 Tax Reform 2003 Tax Reform changed the part of the tax base of Local Enterprise Tax for the corporations with capital in excess \100 million from Income Base into Pro-Forma Standard while reducing the tax rate for Income Base. Income Base : tax rate 9.6% tax rate 7.2% Pro-Forma Standard New Taxation System NOTES : Taxation for Corporations (Tax rate for corporate income) 1) National Corporation Tax 30.0% 2) Local Enterprise Tax 9.6% → 7.2% (After Apr. 2004) 3) Prefectural Inhabitant Tax 1.5% (5.0% of the amount of National Corporate Tax) 4) Municipal Inhabitant Tax 3.69% (12.3% of the amount of National Corporate Tax) * The tax amount of Local Enterprise Tax on corporation is included in loss, when calculating the income of a corporation. (Same as Property Tax.) 2003 Tax Reform of Local Enterprise Tax In Japan

2. Taxpayers and tax bases of Local Enterprise Tax ・ Corporations are subject to Local Enterprise Tax by 47 prefectures. For most corporations, the tax base of Local Enterprise Tax is the income of the corporation (same as that for the national corporation tax). ・ After April 2004, corporations with capital in excess \100 million are taxed as follows:  One quarter: by size of business (Pro-Forma Standard)  Three quarters: by amount of income. ・ 33 thousands out of the 2.47 millions corporations are subject to this taxation. ・ This new taxation was introduced by revenue neutral. Target tax revenue of Pro-forma Standard is \510 billion. (Total revenue from Local Enterprise Tax was \3,453 billion in 2002 fiscal year.) Before Mar. 2004After Apr. 2004 Income ： Pro-Forma ３ ： １ (Tax Rate: 9.6%) Value-Added Levy (0.48%) Capital Levy (0.2%) ２ １ Income Levy (Tax Rate: 7.2%) Effective Tax Rate for Cooperate Income (including national and local tax) 40.87%* 39.54%** * *(30+1.5+3.69+7.2)/(100+7.2)=0.3954 Pro-Forma Standard Taxation on Local Enterprise Tax * (30+1.5+3.69+9.6)/(100+9.6)=0.4087

3. ＝ ＋ Other assets Stocks of subsidiaries Tax base Deduction Gross asset Amount of capital １００％ x ５０％ 100billion 500billion １,000billion Tax base x ２５％ 100billion 300billion 425billion Capital Wages, bonuses, fees, retirement payment Rent paid minus rent received Interest paid minus interest received ＝ ± Profit and Loss Distribution of Earning Payrolls + Net Interest Paid + Net Rent Paid Single-year loss can deducts from the amount of the distribution of earning. Profit 10 Net Interest 5 Net Rent 5 Distribution of Earning = 130 * Deduction 29 Payrolls 120 Tax Base for Value-Added Levy = 111 = Distribution (130)-Deduction (*29)+Profit(10) Tax Base for Value-Added Levy Single-year Profit and Loss for taxable year Deduction for employment stabilization The amount of payrolls exceeding 70% of the total amount of the distribution of earning can deduct from the tax base 120 - (130 × 0.7) = *29 Addition-type Value-Added Levy (Tax Rate:0.48%) Paid-in capital or Amounts invested Capital surplus Tax Base for Capital Levy Capital Levy (Tax Rate:0.2%) *2 Deduction for Huge Capital Companies In calculating the tax base, capital in excess \100 billion can be reduced. No part of capital in excess \1,000 billion can be included. *1 Deduction for Holding Companies The amount of capital of certain holding companies can be reduced by the portion of the amount of stocks of subsidiaries to the total amount of gross assets of the holding company. Calculation of Tax Base for Pro-Forma Standard Taxation