Tokyo’s over-taxed i-bankers need a break. And thanks to Japan’s dire shortage of skilled foreign workers, a break might be on the horizon.

In 2006 just 158,000 of the 2.08m non-Japanese residing in Japan were categorised as skilled workers. Coupled with Japan’s declining birthrate and rapidly aging society, these stats last week prompted the Japanese Government’s top advisory panel, the Council on Economic and Fiscal Policy, to urge the government to begin discussing tax reforms to attract skilled workers from overseas.

Recruiters say tax reform has been a long time coming. Warwick Pearmund, a senior finance recruiter at Boyd & Moore Executive Search, says with a top tax band of 40% for non-domiciled expats in Japan, on top of local taxes, Tokyo cannot compete with the allure of Singapore (15%) and Hong Kong (16%).

Pete Millett, director of banking recruitment at People Services International, says the government needs to simplify market entry procedures and lower corporate and other taxes for financial firms considering where to base themselves in Asia. “Japan is not competitive with Singapore or Hong Kong,” Millett says.

The Japan Business Federation (Nippon Keidanren) last month called for the government to begin tax reforms and strengthen Japan’s financial services industry by developing the Tokyo market. Keidanren’s 2008 General Assembly resolution recommended the Government “build the foundations for international competition and secure sustainable economic growth through strategic revision of the corporate taxation structure and system of economic laws, and through strategic implementation of international standardisation.”

The big question, however, is will the Government listen?