Prime Minister Shinzo Abe vowed Wednesday to cut the corporate tax rate next fiscal year beyond current targets, paving the way for bringing it below 30 percent to boost investment and wages.
Abe told a meeting of the Council on Economic and Fiscal Policy that the government will also find ways to help companies increase pay and minimum wages, as private-sector members of the panel have called for.
“As for corporate tax reform, we will certainly add more deductions to the tax reduction” in fiscal 2016, paving the way for reducing the effective corporate tax rate below 30 percent, Abe said.
In the meeting, members of academic and business circles urged the government to reduce the corporate income tax rate below 30 percent as early as next fiscal year from the current 32.11 percent, which is relatively high by international standards.
The government has already decided to lower the rate to 31.33 percent in fiscal 2016. But a further cut could be difficult to achieve, as the Finance Ministry is demanding alternative revenue to make up for the lower income.
The panel members from the private sector also pointed to the need for companies to increase wages by a margin matching the 3 percent gain in nominal economic growth that will be required if, as planned, the nation’s gross domestic product reaches ¥600 trillion within five years.
“It is essential to link corporate profits to capital investment and wage increases,” Abe said.
The GDP goal, set for fiscal 2020, represents an expansion of more than 20 percent from the ¥491 trillion achieved in fiscal 2014. Economists increasingly doubt that the target is realistic.
The prospects for economic recovery remain unclear, as data showing a second consecutive contraction in the July to September quarter would signal that the world’s third-largest economy has slipped back into recession. Factors that will not help include slowdowns in emerging markets such as China.
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