Corporate entertaining in Japan: Kanpai! Wining, dining and gift-giving are to become tax-deductible for big firms

Corporate entertaining in Japan: Kanpai! Wining, dining and gift-giving are to become tax-deductible for big firms

Dec 14th 2013 | TOKYO | From the print edition

ALREADY, confides a kimono-clad hostess at Maiko, one of the pricier nightclubs in Ginza, Tokyo’s entertainment district, the efforts to revive Japan’s economy by Shinzo Abe, the country’s prime minister, are having a positive effect. The atmosphere at Maiko is indeed buoyant, as a billionaire entrepreneur and other moguls make a late-night entrance into the establishment’s convivial salon. Things could soon get even better. The government’s latest ploy to revitalise the economy is to make corporate entertainment by large companies partially tax-deductible.For the moment only small and medium-sized firms may deduct a limited amount of money spent entertaining clients as a business expense. During the boom years of the 1980s that hardly held back larger companies, defined as those with capital of over ¥100m ($1m). Back then, spending on settai, as formal entertaining is known in Japan, at one point rose to an annual ¥6 trillion and for several years comfortably exceeded Japan’s outlay on defence. Since the peak in 1992, entertainment spending has halved. Many Ginza clubs, which can charge ¥50,000 or more just for admission, went bust. Times got tighter still after the 2007-08 financial crisis and recession.

Nothing formal has been announced yet, but Taro Aso, the finance minister, has floated the idea. Takashi Inoue of Keidanren, Japan’s main business lobby, expects that big firms will be permitted to deduct half of their entertaining outlays from the start of the next tax year, in April, with no upper limit. That will save them a lot of tax: about ¥200 billion, he estimates.

The tax break would help to offset the dampening effect of an increase in Japan’s consumption tax, which is due to rise from 5% to 8% in the spring. Better yet, it would encourage firms that have been reluctant to invest or to raise wages to inject more cash into the domestic economy. In fact, since Japan’s generous expense accounts are commonly regarded as a part of executive pay, the change would be the equivalent of a rise for Japan’s salarymen. Mr Aso, himself a frequenter of fancy bars, argued in a speech earlier this year that the best way to get Japan Inc to spend some of its cash pile was “pleasantly” on entertaining and seasonal gifts.

As the whisky flowed in earlier decades, a series of scandals involving the bribing of bureaucrats gave settai a bad name. A few firms banned the practice. Police recently arrested a salesman from Deutsche Securities, a broker, for spending over ¥900,000 on food, drink, golf and overseas travel for a pension-fund executive at Mitsui, a trading house, who gave him some ¥1 billion of business. At least the economy benefited.