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Government panel urges cut in corporate tax

Kyodo

A government tax panel called Wednesday for a corporate tax cut in an attempt to boost foreign investment despite budgetary constraints, according to a statement presented by its chief, Hiroko Ota.

Ota, a former finance minister who heads the panel, which has been newly created under the Tax Commission to discuss matters related to corporate taxes, added in the statement that it is vital to broaden the tax base to prevent revenue from falling sharply in the wake of such a cut.

The group, which held its first meeting Wednesday, plans to continue studying how a corporate tax cut would affect the economy and report the outcome to the general meeting of the panel, which is an advisory body to Prime Minister Shinzo Abe.

The government is aiming to pledge in its longer-term economic and fiscal policy blueprint to be crafted in June to cut the corporate tax rate, as Ota says it is “heavy by international standards” and discouraging foreign firms from operating in Japan.

Ota, currently a professor at the National Graduate Institute for Policy Studies in Tokyo, also called on the Abe administration to scale back some tax breaks and rethink other taxes, including the income tax.

Abe is eager to carry out a corporate tax reduction, but the Finance Ministry and some lawmakers in his ruling Liberal Democratic Party oppose it, arguing such a measure would hamper efforts to restore the country’s fiscal health — the worst among major industrialized economies.

If the effective corporate tax rate is cut from about 35 percent to 25 percent, the same level as in China and South Korea, it would reduce tax revenues by about ¥5 trillion, the ministry estimated.

The national debt is equivalent to more than 200 percent of the gross domestic product, and it topped ¥1 quadrillion for the first time last year.

Only around 30 percent of companies currently pay corporate tax, with the rest exempt due to poor business performance.