Japan's New PM To Pursue Investment-Spurring Tax Cuts

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

27 September 2006

Japan's incoming Prime Minister Shinzo Abe is to pursue a pro-growth economic agenda which could lead to cuts in corporate tax and other tax incentives to encourage capital investment.

Citing a source close to the new Prime Minister, who was confirmed as Junichiro Koizumi's successor on Tuesday after the latter stepped aside, the Daily Yomiuri reported that Abe will propose about 600 million yen (US$5.1 billion) in corporate tax cuts for the fiscal year 2007.

Abe is also said to favour an increase in the depreciation limit which companies can deduct from profits on the purchase of new equipment to 100% from 95%. He may also expand the angel tax system whereby investors in venture capital receive preferential tax treatment.

Several sectors of the Japanese economy are expected to benefit from the tax cuts, although one of the main aims is to lift the level of investment in information technology equipment, which at 2% of gross domestic product lags behind the global average of 2.8% of GDP, according to the report.

However, Abe is likely to delay discussion of the politically sensitive consumption tax until the latter half of 2007. Currently 5%, Japan's consumption tax is low compared to many industrialised economies. However, there is fierce debate over whether the tax should be increased by as much as 5% to help pay for future social security provision.

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