The ruling Liberal Democratic Party’s tax panel is likely to agree to Prime Minister Shinzo Abe’s plan to cut the corporate tax rate, as long as he pledges to continue efforts to restore the country’s fiscal health, LDP lawmakers said on Tuesday.
The LDP’s Research Commission on the Tax System is expected to call on the government to broaden the tax base to help cover a possible decline in tax revenues following any corporate tax cuts, they said.
Takeshi Noda, the panel’s chairman, has cautioned that the corporate tax cuts would make it more difficult to improve Japan’s public finances, already the worst among major industrialized countries.
But many LDP lawmakers, including Noda, said they would allow Abe’s government to carry out the tax cuts if it sticks to its goal of turning the primary balance — annual tax revenues and nontax revenues minus outlays other than debt-servicing costs — into a surplus by fiscal 2020.
The panel is also set to propose the government expand corporate taxation based on “external standards” such as the number of employees, capital, and other measures of an operation’s scale, the lawmakers said.
It is believed that the such a move would help stabilize tax revenues, as it would be imposed on both profit-making and loss-making companies, regardless of economic fluctuations.
Currently only around 30 percent of companies in the country pay corporate tax, with the rest exempt due to poor business performance.
Japan’s effective corporate income tax rate — consisting of national and local taxes — stands at around 35 percent, much higher than the 25 percent seen in China, 24 percent in South Korea and 17 percent in Singapore, according to Finance Ministry data.
Business leaders and some experts have argued that Japan’s higher corporate tax rate makes foreign companies reluctant to operate in the country, stifling the nation’s economic growth.
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