Japanese Businesses Urge Tax Cuts To Tackle Deflation

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

29 April 2003

Japan's annual Cabinet Office survey of corporate activity has revealed that many major corporations want to see the government use more fiscal measures, most particularly tax breaks, to pull the country out of an unprecedented four year period of deflation.

The survey, which for the first time asked what measures should be employed to tackle Japan's damaging deflationary environment, polled 1,270 firms in January of this year. Whilst 51% of respondents suggested that both fiscal and monetary steps should be taken to ease deflation, only 7.8% wanted the government to use solely monetary measures, as opposed to the 27.8% who favoured wholly fiscal policies. Of those who preferred fiscal measures, 44.4% wanted to see permanent cuts in corporate taxation.

Whilst Japan's headline rate of corporate tax of 30% is similar to the rates levied by its G7 competitors (35% in the US, 30% in the UK, and 25% in Germany), reports indicate that the effective rate of corporate tax is 40.87%.

The survey also revealed a prevailing attitude of pessimism amongst Japanese businesses. An altogether rather gloomy outlook was rounded off by expectations that the economy will grow a lacklustre 0.3% in the current financial year, with GDP predicted to grow on average 0.7% in the ensuing five years - the lowest levels ever recorded.

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