News Column

Aso to OK corporate tax cuts if financial resources can be secured

June 2, 2014

Finance Minister Taro Aso said Tuesday he will accept Prime Minister Shinzo Abe's proposal to cut Japan's relatively heavy corporate income tax rate from next fiscal year if financial resources can be secured to cover a possible decrease in tax revenues.

It was the first time that Aso expressed acceptance of implementing corporate tax cuts, although he had argued the tax change would hamper the government's attempt to restore Japan's fiscal health -- the worst among major developed economies.

"It's OK (to cut the corporate tax rate) if stable financial resources are found," Aso said at a press conference.

His remarks came before talks between Abe and Takeshi Noda, chairman of the ruling Liberal Democratic Party's tax panel, later in the day to add a final touch on the LDP's proposal on how to reform the country's corporate tax system.

During the meeting, Abe, head of the LDP, is expected to urge Noda to allow the government to reduce Japan's corporate tax rate as soon as possible.

Noda, meanwhile, is set to ask Abe's administration to continue pursuing its goal of turning the primary balance -- annual tax and nontax revenues minus outlays other than debt-servicing costs -- into a surplus by fiscal 2020.

To help stabilize tax revenues, Noda is also likely to call on Abe to expand corporate taxation based on "external standards," such as the payroll, capital and other measures to scale operations, as it covers both profit-making and loss-making companies.

Japan's effective corporate income tax rate -- consisting of national and local taxes -- stands at around 35 percent, compared with 25 percent in China, about 24 percent in South Korea and 17 percent in Singapore, according to Finance Ministry data.

Currently only around 30 percent of Japanese companies pay corporate taxes with the rest exempt due to poor business performances.

Abe has reiterated corporate tax cuts are necessary to boost foreign investment in Japan, with many business leaders and experts saying a higher corporate tax rate makes foreign companies reluctant to operate in the country, curtailing economic growth.

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Source: Japan Economic Newswire

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