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Abe to cut business tax but mum on how

Kyodo

Prime Minister Shinzo Abe pledged Friday to reduce the 35 percent corporate tax rate to under 30 percent in the next few years in an attempt to boost foreign investment and bolster the economy.

Abe also said that his administration will secure other financial resources to cover the resulting drop in tax revenue but did not specify how.

“We will make a growth-oriented reform of the corporate tax system,” Abe again vowed, expressing hope the tax cuts will improve employment and Japan’s quality of life amid a consumption tax hike and wages that aren’t keeping pace with inflation.

He said the tax reform will be incorporated into his revamped economic and fiscal policy blueprint for fiscal 2015, which is scheduled to be endorsed by the Cabinet on June 27.

The cuts were among a plethora of structural reforms Abe vowed to pass in his “third arrow” of “Abenomics,” a deflation-busting mix of fiscal, monetary and growth policies struggling to gain traction.

Japan’s effective corporate income tax rate — consisting of national and local taxes — is much higher than China’s 25 percent, South Korea’s 24 percent and Singapore’s 17 percent, according to data from the Finance Ministry, which opposes backing the move unless alternative sources of revenue can be found.

Business leaders and experts have argued that the high corporate tax rate makes foreign firms unwilling to operate in Japan, which curtails economic growth.

At the moment, only around 30 percent of Japanese firms are paying corporate taxes, with the rest exempt due to poor business performance.

Japan’s fiscal health is the worst among the major developed economies because it has a public debt equivalent to more than 200 percent of its gross domestic product. Central government debt topped ¥1 quadrillion last year.

As sought by Abe, economic and fiscal policy minister Akira Amari and Takeshi Noda, chief of the LDP’s Research Commission on the Tax System, met Thursday to decide how to describe the promised tax cut in the blueprint the Cabinet plans to endorse on June 27.

Amari and Noda meanwhile failed to agree on finding new sources of tax revenue. Given the nation’s fiscal ills, Noda is pushing to secure stable resources by broadening the corporate tax base.

But Amari argued that revenues will likely be larger than projected due to the recovery, and that the additional revenue should be used to finance the promised corporate tax cut.

  • zer0_0zor0

    Any potential reform in the Japanese corporate tax should wait until the current problems related to corporate taxation in the EU are redressed, as that may have an impact globally on how corporations distribute their operations with respect to the locations where their products sell.

    Since Japan is a huge market, there might be a positive impact here if the net result is that corporate taxes are raised to a more comparable level in the EU.

  • itoshima2012

    Abe Abe, I got my health insurance slip today, it’s 81.000¥ a month for the next 10 months! Great that we reduces the big companies tax by another 5% ! So I can expect another rise in my insurance premium to pay for his cuts! This starts to really piss me off !!!!