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Japan Finalizes Plans For Corporate Tax Rate Cut

by Mary Swire,, Hong Kong

18 December 2014

Following his Government's significant parliamentary majority after the recent election in Japan, Prime Minister Shinzo Abe's Government is now to finalize its tax reform plans, including a corporate tax rate cut, by the end of this year.

Earlier this year, the Government took a decision to reduce the country's corporate income tax rate by at least 2.5 percent in the Budget for the next fiscal year, which begins on April 1, 2015. It was to represent a first step towards lowering the current high corporate tax rate of more than 35 percent to below 30 percent over the next few years, as part of Abe's promised growth strategies.

Following the election, discussions have already begun to agree the actual level of the planned corporate tax cut in 2015, and it is expected that the final proposal will concretize a 2.5 percent reduction, with further rate cuts expected for succeeding fiscal years.

The Government had also previously agreed that, even if the further two percent consumption tax increase was to happen as scheduled in October 2015, corporate rate cuts would only be possible with other measures to offset most of the consequent revenue losses, given Japan's fiscal deficit position. As that consumption tax hike will now be delayed until April 2017, such alternative revenue sources are seen as mandatory.

In fact, as only around 30 percent of Japan's companies presently pay corporate tax because of previous losses, it is being proposed that revenue can be raised by broadening the corporate tax base by changing, at least in part, from a profit-based system to a size-based system, possibly based on employee numbers or capital utilization.

On the other hand, small- and medium-sized enterprises are likely to retain their reduced tax rates or exemptions, while companies that agree to increase employees' wages in compensation for the tax reduction could receive tax breaks.

TAGS: compliance | tax | business | tax compliance | fiscal policy | employees | budget | corporation tax | tax rates | tax breaks | tax reform | Japan

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