Government considers lowering bar for corporate tax break to spur pay raises

Kyodo

The government will consider lowering the bar for a tax cut for companies giving wage hikes to minimize any slowdown in consumption after the planned sales tax increase in April, sources close to the matter said Sunday.

Changes would be made to the corporate income tax reduction introduced by the government of Prime Minister Shinzo Abe, effective for three years through March 2016 and aimed at boosting income to help fight Japan’s chronic deflation.

Companies are currently eligible to deduct 10 percent of salary increases from income tax if their total pay to employees is higher than the total paid in the reference year of fiscal 2012 by 5 percent or more and the average wage per employee has not fallen from the previous year.

As of the second and third year of the tax break period, companies receiving the tax incentive in fiscal 2013 ending next March would lose their eligibility for the deduction if the total amount of wages falls from the previous year.

While details are not known, the government will consider easing the requirements for the tax break after business leaders said not many companies can meet such conditions, the sources said.

Under legislation enacted last year, the government plans to raise the sales tax rate from 5 percent at present to 8 percent next April and to 10 percent in October 2015 to secure funds for swelling welfare costs amid the nation’s graying population.