Finance Minister Taro Aso expressed reluctance Thursday to cut the effective corporate tax rate, brushing aside speculation that the administration may take the measure to cushion the negative impact of the planned hike in the consumption tax.
“Even if we cut the corporate tax rate, it would have little effect” on the economy, Aso said, emphasizing that only around 30 percent of companies currently pay the tax, while the rest are exempt on the grounds of poor business performance.
Aso said he is considering a tax reduction aimed at stimulating private-sector investment.
Some experts argue that the corporate tax is heavy in Japan by international standards and should be cut to attract foreign investment.
The effective rate, consisting of national and local taxes, stood at 35.64 percent as of January for companies based in Tokyo, higher than around 30 percent in Germany, 25 percent in China and 17 percent in Singapore, according to data released by the Finance Ministry.
As for the planned sales tax hike, Aso indicated he believes the economy is steadily recovering, which would allow the government to raise the 5 percent levy to 8 percent next April.
Noting the gross domestic product data released by the Cabinet Office on Monday showed the economy grew by an annualized real 2.6 percent in the three months through June, Aso said the results will “have a good influence” on discussions about the tax hike. The tax is scheduled to be raised to 10 percent by October 2015 to cover swelling social security costs.
Prime Minister Shinzo Abe has said he will make a judgment this fall on whether to implement the first round of the two-stage hike after hearings with experts on how it will affect the economy, which has recently shown signs of emerging from nearly two decades of deflation.