The Liberal Democratic Party-New Komeito ruling bloc agreed Monday to end the special corporate tax surcharge levied to finance the reconstruction of the disaster-hit Tohoku region one year earlier than planned, but will keep the levy added to personal income taxes for 25 years.
"The government will compile its stimulus plan based on the decision to terminate the special surcharge (on corporations)," Takeshi Noda, who heads the LDP tax panel, told reporters after meeting with New Komeito.
Upon reaching the agreement, the coalition demanded that the government secure the funds to compensate for the drop in tax revenues from the termination, achieve wage hikes and expedite Tohoku's reconstruction.
Since Prime Minister Shinzo Abe in October decided to go ahead with raising the 5 percent sales tax to 8 percent next April, the ruling bloc has been mulling a ¥5 trillion stimulus plan to offset the negative impact of the tax hike.
Ending the corporate tax surcharge a year earlier than planned is one of the key pillars of the economic package, which the coalition is scheduled to unveil Thursday.
Initially, New Komeito had been cautious about reducing the corporate levy alone, as the idea was criticized by the public and people in the Tohoku region, especially at a time when companies have yet to raise wages.
The coalition in April introduced an additional tax on the corporate and income levies to generate ¥10.5 trillion to help rebuild disaster-stricken areas.
While the cut would reduce companies' annual tax burden by an estimated ¥900 billion, the 2.1 percent surcharge on income taxes stays for another 25 years.