The government and ruling bloc plan to slash the effective corporate tax rate to 29.74 percent in the fiscal year starting April 2018 from the current 32.11 percent, sources said Friday.
This would be the second of a two-stage tax cut aimed at encouraging firms to increase capital investment and wages, the sources said, as the tax rate for fiscal 2016 is already scheduled to be cut to 29.97 percent.
By further reducing the corporate tax rate, Prime Minister Shinzo Abe is looking to boost economic growth by increasing international competitiveness.
The government hopes to secure financial resources for the cut by reviewing a plan that lets companies reduce their tax payments through deduction of losses in the past 10 years from recent profits, the sources said.
The plan will be included in a tax system revision plan for fiscal 2016 that is expected to be finalized next Thursday.
According to the Finance Ministry, a 1 percent cut in the effective corporate tax rate would require financial resources of ¥400 billion ($3.26 billion) to ¥500 billion.
To make up for the decline in tax revenue in fiscal 2016, the government plans to increase taxation for companies reporting losses.
Meanwhile, separate government sources said it is considering reducing the issuance of new bonds this fiscal year by some ¥400 billion to ¥500 billion, from the initially planned ¥36.86 trillion.
The government is moving to compile an extra budget this month of ¥3.3 trillion to ¥3.4 trillion to bolster the economy via social welfare measures and support for farmers, the sources said. The bond issuance reduction will be stipulated in the extra budget bill for fiscal 2015.
The reduced bond issuance reflects increased corporate and personal income tax revenues. The government now projects tax revenue for fiscal 2015 at ¥56.4 trillion, ¥1.9 trillion more than originally estimated due to improving corporate profits.
However, nontax revenue is now projected at ¥300 billion to ¥400 billion less than initially expected, due to a smaller payment into state coffers from the Bank of Japan as it increases its loan-loss reserves to prepare for a rise in interest rates, the sources said.
So to fund the extra budget, the government also plans to tap about ¥2.3 trillion in unspent funds from fiscal 2014, the sources said.
As the total of the higher tax revenue and the unspent funds is to exceed the planned supplementary budget, the government will be able to cut new bond issuance for the year.
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