Business

Corporate tax rate to be reduced by April '15, Nishimura says

Bloomberg

Tokyo will start making significant cuts to the corporate tax rate by April 2015 in line with its aim of making the economy more competitive and of spurring a recovery driven by spending and massive monetary stimulus, deputy economy minister Yasutoshi Nishimura said.

“Japan needs more foreign direct investment and we want to do more to encourage corporations to invest here,” Nishimura said Wednesday in an interview in New York. The government plans to outline in June more details on measures that will make it easier to do business in Japan, he said.

Japan’s effective tax rate of about 36 percent is the second-highest in the Group of Seven after the United States, and compares with levies of about 24 percent in South Korea and 23 percent in Britain.

“We want to come up with a road map that gets us much closer” to a rate below 30 percent, Nishimura said.

Finding alternative sources of tax revenue will be key to whether the corporate levy can be cut, Nomura Securities Co. economists including Tomo Kinoshita said in a research report on Wednesday.

“The debate is likely to come to a head in May,” they wrote, adding that the prospects for reductions starting in the fiscal year from April 2015 “have improved slightly.”

Economy chief Akira Amari said Wednesday the government wants to reduce the effective corporate tax rate to the 20 percent range as soon as possible, while maintaining consistency with its goal of restoring fiscal health, NHK reported.

Finance Minister Taro Aso has said that any cut in the levy must be accompanied by a rise in revenue from other sources to avoid worsening the fiscal position of a government with the world’s heaviest debt burden.

Stimulating growth has become more important after Japan last week reported a 1.8 percent rise in the value of shipments overseas from a year earlier, the weakest export growth in a year, according to Finance Ministry data on April 20. The result compared with a 6.5 percent median estimate by a group of 27 economists in a Bloomberg News survey.

An 18.1 percent jump in imports helped widen the deficit to the biggest ever for the month. This comes even after the Bank of Japan’s unprecedented stimulus helped weaken the yen about 18 percent against the dollar last year.

“We are concerned that even though the yen got weaker, exports haven’t grown, and we are analyzing that,” Nishimura said. He attributed part of the export weakness to a focus on domestic demand, manufacturers moving production overseas and a weakening in the competitiveness of appliance companies. “After April, domestic demand will weaken, allowing exports to grow,” he said.

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