Prime Minister Shinzo Abe pledged to follow through with a corporate tax cut, a day after government data underscored businesses' reluctance to ramp up domestic investment.
In a message read out at a Bank of America Merrill Lynch event in Tokyo on Wednesday, Abe said he would lower the effective corporate tax rate of about 35 percent by at least 3.3 percentage points next year and will "aim to go beyond that if possible."
"We will push forward in reducing the rate down into the twenties over several years, bringing it to a level that compares favorably in the international context," Abe said. "We will change Japan into a country that is able to keep growing. Placing the economy as my highest priority, I will move forward steadily, step by step, on the road map for achieving this goal."
Gross domestic product shrank at an annualized 1.2 percent in the three months through June from the first quarter, with businesses reducing investment in a rebuff to Abe's call for Japanese companies to deploy their record cash holdings and a surge in profits into capital spending. But with more than 70 percent of Japan's companies not paying income tax, the government also needs more companies to become profitable.
Abe's administration plans to continue lowering the levy over about five years to under 30 percent. The finance ministry estimates it is currently the second highest among Group of Seven nations.