JT making questionable political donations in bid to stop tobacco tax hike

Updated : 07.12.2016 / Category Economy

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Antismoking is a long-established social trend that makes smokers feel out of place. And with the International Olympic Committee championing smoke-free Olympics and Paralympics, Tokyo will likely stiffen regulations in the run-up to the 2020 Games—including the rules on passive smoking.

Despite the global antismoking trend, Japan Tobacco Inc. (JT) has been putting up resistance in an attempt to protect its huge profits and vested interests. The company is accused of prioritizing corporate gain over smoking-related health issues, allegedly providing donations to politicians "in return for favors."

This article tries to shed light on JT's behind-the-scenes maneuvering in a society where antismoking is the mainstream stance.

On the evening of October 30, top ministry officials and corporate executives gathered at the Capitol Hotel Tokyu near the Diet building, for a fund-raising party for Yoichi Miyazawa, chairman of the Liberal Democratic Party's Research Commission on the Tax System. JT executives were among the guests, and were spotted speaking in hushed tones with Miyazawa, the key figure behind tax reforms for fiscal 2017.

JT is among companies that dispatch executives to fund-raising parties for LDP Diet members that could prove instrumental in protecting such firms' vested interests, in addition to crafting favorable tax system reforms.

"This shows the extent of JT's alarm over the current situation," said one particular secretary to a veteran LDP member. "The firm, which is closely related to the state, has stepped into a gray zone by asking the ruling party for favors [vis-à-vis tax reforms]."

Stymieing the tobacco tax rise
JT executives attend these fund-raising parties for politicians with a single purpose in mind: halting a hike in the tobacco tax rate. The firm is concerned that the tax rise could dent both its sales and resultant profits.

Recently, an event occurred that sent JT scrambling in the direction of politicians in hopes of influencing the tax reform. On October 25, Akiko Santo, a House of Councillors member who serves as chairman of the league of LDP lawmakers against passive smoking, met Chief Cabinet Secretary Yoshihide Suga to urge the government to raise the price of cigarettes to more than ¥1,000 per packet.

Her request, based on the assumption that the tobacco tax will be raised, is aimed at decreasing the number of smokers—an effective measure to prevent passive smoking in the run up to the 2020 Games. Suga reportedly responded, "The timing is right to do this, because of the Games."

Purely private companies are allowed to lobby politicians. JT, however, is a "semi-state owned" company, which began the process of privatization in 1985. It has, however, seen many officials from the Finance Ministry parachute into the firm and onto the payroll.

For example, Yoji Wakui, a former director-general of the ministry's Budget Bureau, served as JT chairman from 2004-2012. And in 2014, the company appointed Yasutake Tango, a former administrative vice finance minister, as chairman.

Under Japan's Political Funds Control Law, companies are prohibited, in principle, to make political donations for a period of one year after receiving a letter of notification for government subsidy granting. The provision is aimed at preventing firms from making dubious donations to maintain or strengthen the "special relationship" established with the state through subsidies. Violators are subject to a prison term of less than three years or a fine of less than ¥500,000.

Though JT does not receive any state subsidies, the state still holds a third of its stake. The appointment of the former administrative vice finance minister as chairman demonstrates that the company maintains a "special relationship" with the state. For a corporation to provide financial support to politicians or make political petitions, strikes many observers as being tantamount to collusion.

JT suffering from impatience, anxiety
Stopping the tax hike is not JT's only task. It also is trying to convince politicians that strengthening regulations on antismoking—including the prevention of passive smoking—is a bad idea.

In March, JT began marketing Bloom Tech, a new product that does not need to be lit, and which does not emit smoke associated with burning paper or tobacco leaves. JT claims the new product drastically reduces the amount of tar containing toxic substances as well as tobacco odors. The product is similar to Philip Morris International's iQOS system, which heats, rather then burns, tobacco leaves, which considerably reduces the production of toxic substances.

The tobacco industry is therefore trying to persuade the Japanese government that such products should be distinguished from ordinary cigarettes in terms of regulations, and thus be exempted from the passive-smoking rules currently being considered.

However, Health, Labor and Welfare Minister Yasuhisa Shiozaki—known as being antismoking—reportedly is considering making the new products subject to passive-smoking regulations. Upon learning of this, JT reportedly began applying pressure to stop Shiozaki's move.

Yet another episode demonstrates JT's resistance: On Aug. 31, the National Cancer Center Japan announced that research had shown "the risk of Japanese being afflicted by lung cancer increases by 30 percent through passive smoking." JT immediately posted a counterargument on its website, written by President and CEO Mitsuomi Koizumi, saying the center's finding was not substantiated by scientifically persuasive evidence. In the United States and European countries, passive smoking is recognized as being hazardous to health, but JT is the only firm within in the tobacco industry has never acknowledged this, failing to face up to the advice issued by numerous researchers.

Underlying JT's attitude is a major reorganization of the global tobacco industry. The firm has thus far acquired British firm Gallaher, the overseas operational arm of U.S. concern RJR Nabisco, as well as the arm that deals with operations outside the States for the Natural American Sprit brand, produced by Reynolds American.

Through these acquisitions, JT aimed to solidify its global status as one of the three major tobacco makers, alongside Philip Morris International and British American Tobacco. But recent developments have given JT cause for concern. On October 21, British American Tobacco proposed acquiring Reynolds American for $47 billion (¥5.1 trillion). If the deal were to be sealed, British American Tobacco—currently the second largest tobacco company in the world—would surpass Philip Morris International in term of sales and profit. JT would thus be left trailing far behind the two tobacco giants.

As JT is practically controlled by the government, the firm is ill-prepared for the possible reorganization of the global tobacco industry. Under the law, the government is not allowed to hold a stake of more than a third in JT, a provision that makes it impossible to procure government funding through the issuance of new shares.

There are no instances of governments, which are supposed to care for the health of the people, holding stakes in U.S. or European tobacco companies. The Japanese government clings on to its JT shares because it receives an annual dividend of ¥80 billion. This sum is put into the government's special account, which is not visible to the public, and used to make up shortfalls in tax revenue.

The government allegedly puts priority on securing tax revenues, while putting the health of citizens on the back burner. For its part, JT talks its way around the health hazards posed by tobacco in its pursuit of profits. A huge gulf exists between the respective visions of JT and the IOC in terms of realizing smoke-free Olympic and Paralympic Games.

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This is a translation of an article from the December 2016 issue of Sentaku. The original article can be found here.