LDP readies measures to cushion tax hike

by Ayako Mie

Staff Writer

The ruling coalition on Friday agreed on certain parts of a ¥5 trillion stimulus package being readied to ease the impact of the planned sales tax hike, including handouts of up to ¥15,000 for lower income households.

The package will be unveiled Tuesday, when Prime Minister Shinzo Abe announces whether he will hike the sales tax to 8 percent next April from 5 percent now.

The economic steps, which would be financed in part by revenue from the tax hike, would be introduced to dodge criticism that the higher levy might dampen consumer confidence and weaken business performance.

According to the government’s plan, 24 million households that are exempt from local municipal taxes would receive ¥10,000 per person. Homes that receive child rearing allowance or pension payments would get an additional ¥5,000 per person per household.

Abe’s ruling coalition also approved a plan to expand tax break incentives for wage hikes. Large businesses that raise workers’ salaries by more than 2 percent would get a tax break worth 10 percent of the total increase, while small to midsize firms would receive tax breaks worth 20 percent of the sum. Currently, such tax incentives apply only when firms hike salaries by 5 percent or more.

On the controversial issue of ending the 2011 Tohoku reconstruction surcharge for companies a year earlier than planned, the ruling block decided to continue discussing whether and how it would be halted.

Corporate tax breaks have been a centerpiece of the Abe government’s economic policies. Japan’s cooperate tax rates are high by global standards. In Tokyo, for instance, the rate effectively stands at around 38 percent, but terminating the surcharge would bring it down to 35.64 percent.

The government plan could reduce the annual corporate tax burden by an estimated ¥900 billion. Yet the LDP and junior coalition partner New Komeito are divided over ending the surcharge, and New Komeito is especially opposed to the tax break idea.

At a tax panel meeting Wednesday, the 19 attendees all opposed lowering the corporate tax rate by cutting the surcharge, especially because they don’t believe they would be able to explain it at a time when most people haven’t seen any real wage hikes.