The government and the ruling parties are considering heavier taxes on stock dividends and capital gains to help cover a revenue drop from a possible cut in the effective corporate tax rate, Jiji Press has learned.
The hike is expected to be presented to the government’s Tax Commission as an alternative tax revenue source option, together with reviews of a number of tax incentives, informed sources said.
The proposed cut in the effective corporate tax rate, which stands at 35.64 percent for fiscal 2014, is one of the key issues in the government’s tax system reforms for fiscal 2015, starting in April that year.
Private-sector members of the government’s Council on Economic and Fiscal Policy are calling for a reduction in the effective corporate tax rate to around 25 percent, similar to levels in other Asian countries, including China and South Korea.
But the government faces the need to find funds to cover the expected revenue drop. A 1-point cut in the corporate tax rate is estimated to reduce revenue by some ¥470 billion.
The government is looking at an expansion in the scope of corporate taxation, the sources said.
Possible options include the abolition of tax incentives for specific industries and a review to the system under which companies are allowed to carry forward losses for up to nine years and save tax payments, the sources said.
Japan is also expected to search for other alternative resources other than corporate tax.
Some government officials are calling for raising the 20 percent tax on dividends, capital gains and interest income for high-income earners, the sources said.
The progressive taxation system does not apply to dividend and interest income as employment income and such financial income can be taxed separately.
Many experts argue that a revision of the corporate tax needs to be coupled with a review to the income tax as the two taxes are closely linked.
For its part, the securities industry is certain to oppose the proposed heavier taxes on financial income, claiming that the shift in funds to investment from savings will be impeded.