Fiscal and taxation policies for independent innovation of Japan

The “R&D System of Basic Technologies for Next Generation Industries” started by Japanese government in 1981, the “Outline of Science and Technology Policy” adopted in 1986, and the new “Outline of Science and Technology Policy” launched in 1992, all made high-tech industry technology research a key support area. The key points of Japan in implementing the strategy of “establishing a nation by science and technology” include continuing to increase investment in science and technology, attaching importance to basic research and striving to create leading scientific and technological achievements in the world, strengthening research and development in key areas (life, information, environment, and nanotechnology), advancing science and defense research and development of disaster safety (nuclear energy, aerospace, Antarctic observation and marine science and technology, earthquakes, volcanic disasters, etc.), promoting science and technology education reform in large scale to realize the corporatization of the national universities and to “set free” the university, vigorously promoting the “economic revitalization project” for the industrialization of scientific and technological achievements, and launching the “Intellectual Property Promotion Plan” in 2004 for the crackdown on the infringement of overseas products in Japanese market. The Japanese government has also introduced the strategy of “building a nation based on intellectual property rights”, and takes creating high value-added intangible intellectual assets as the main direction and means of participating in international market competition. In the implementation of the strategy of “establishing a nation based on science and technology”, Japan attaches great importance to the integration of government, industry, and education. With the support of the government, Japan fully exploits the university’s strong scientific research team and the economic strength of enterprises to develop new technologies and products and enhances its international competitiveness.

Government input in science and technology increased steadily

Independent innovation cannot do without strong financial support. The Japanese government has always focused on input in science and technology. The first and second phases of the basic science and technology plan were implemented during the period when Japan’s economy stagnated and the government was in financial difficulties. Other budget expenditures remained unchanged or declined, while those related to science and technology increased steadily. In 2004, the budget for the promotion of science and technology, social relations, and SMEs increased by 4.4%, 4.2%, and 0.5% respectively over the previous year. In the third phase of the basic science and technology plan (2006-2010), the total R&D input of the government should reach the target of 1% of GDP while the average growth rate of GDP should be 3.1%. Therefore, the total amount of government R&D input is expected to reach 25 trillion yen. Japan’s science and technology budget for 2008 was of 40,332 trillion yen (about 35.3 billion US dollars), which was an increase of 521.9 billion yen or 14.9% over the previous year. Among them, the strategic focus on science and technology budget w'as of 662.6 billion yen, which w'as an increase of 71% over the previous year. In the total budget, excluding the operating expenses of state universities and grants for research funding, the remaining 802.5 billion yen (about 7 billion US dollars) is set by grading method to determine the focus for budget allocations. According to the Japan’s Integrated Science and Technology Conference, in the 2008 budget, new projects such as Brain Science Research Propulsion Project, Genetically Engineered Crop Engineering, Next Generation Network Technology, and Next Generation Light Water Reactor Technologies in six areas were assessed as the most important S Level, w'hich have a total budget of 10.2 billion yen (about 89.32 million US dollars).

Develop preferential tax policies to promote independent innovation

In the transformation of development strategy, the Japanese government attaches great importance to R&D activities and develops tax incentives to encourage enterprises to increase R&D input and promote technological innovation. Since 1966, Japan has carried out a carry-over of enterprise’s R&D expenses to a future year, allowing for carrying forward to five years. When an enterprise or R&D institution increases its research funding more than its previous quota, it may deduct the income tax by 20% of the increase. For the income earned by legal persons and individuals in exporting foreign technologies, 7% of the income from the transfer of industrial ownership, patents, and other services, and 12% of the income from consulting services can be included in the loss. Government formulates tax levels according to different environmental standards. The ones which are conducive to environment can enjoy low environmental tax; otherwise, the tax burden is high. Higher and higher penalties are imposed on enterprises if they cannot meet technical and economic standards set by the government so as to force enterprises to actively update their equipment, pursue technological progress, and improve competitiveness. Japan pays attention to the digestion and absorption of imported technologies and strengthens the protection of innovation. From 1961 to 1966, the Japanese government decided to implement the “Special Measures on the Taxation of Strategic Industries” in the computer industry and imposed special depreciation on the enterprises that purchased domestically produced computers.

Government R&D input and tax incentives have also led private enterprises to invest in research and development. Since 1995, the investment in research of non-governmental enterprises has increased for nine consecutive years. By 2002, the number of R&D increased to 792,000 and that of research and development reached 16.6 trillion yen, and the share of GDP increased to 3.35%. In the same period, the share of R&D funds in major developed countries in the world was 2.78% in the United States, 2.53% in Germany, 2.26% in France, and 1.87% in the United Kingdom.⁴ At present, the research funds invested by Japanese private enterprises account for about 80% of the total research costs, which is higher than other major developed countries in the world.

Develop financial policies for transferring technology and industrializing achievements

Japan’s Technology Transfer Act in 1998 exempted the “general recognized” patent applications, annual fees, and annual examination fees of technology licensing offices. Japan enacted Law of Technology Transfer Office in 1998, with a government grant of up to 300,000 dollars to the Office of Technology Transfer to promote the transfer of technology from universities to private sectors and support the cost of their patent applications. The government has formulated a subsidy system for technology development and granted 50% of subsidies for the technological development of SMEs, amounting to 5-20 million Japanese yen. The government also gives special subsidies to industrialization of achievements. Japan’s Law on Promoting New Business Creation stipulates that the central government shall annually make a budget to pay SMEs’ operators to grant them for research and development, and provide certain grants to the industrialization of R&D achievements.

In addition, the government uses government procurement to support enterprises’ technological innovation. For example, Japan’s computer industry benefited from government procurement. The government clearly demands that government agencies, state-owned railways, telecom companies, national universities, and relevant government agencies should give priority to domestic computers.