DPJ Looks For Corporate Tax Cuts

by Mary Swire, Tax-News.com, Hong Kong

30 November 2010

A team looking at tax reform for the ruling Democratic Party of Japan (DPJ) has agreed that corporate tax cuts are necessary in Japan, but has disagreed with other measures being considered by Prime Minister Naoto Kan’s government and its tax commission.

Although the recommended size of the corporate tax cuts to be enacted is not given within its proposals, a significant rate reduction is seen by the DPJ as one of the only effective ways of reviving the Japanese economy.

As a consequence, any tax-raising measures by the government, both to counteract any fall in tax revenue from the reduction in corporate tax and to broaden the tax base, have all been rejected, either wholly or in part, by the DPJ.

The counteracting measures reported to be under consideration by the government are said to include a removal of the tax exemption on naptha; a reduced income tax threshold on taxpayers’ eligibility for deductions for spouses; and a lowering of research and development tax credits. The DPJ believes that, if too much of the fiscal effect of the corporate tax cut is taken away through other measures, the recovery of economic growth will also be reduced.

It is expected that government will finalize its tax reform plans by the end of this year, to be included in the budget for the fiscal year beginning April 1, 2011. It is said that there is much to be done to meld the differing views of the party and the government before the production of those plans.

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