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Japan Planning Corporate Tax Cut Next Year

by Mary Swire,, Hong Kong

07 May 2014

Deputy Economy Minister Yasutoshi Nishimura told Bloomberg that, by April 2015, the Japanese Government will begin to make significant cuts to Japan's high corporate tax rate.

The Government's Tax Commission, which is looking at future corporate tax reform, has recently indicated that Japan's effective corporate tax rate should eventually be reduced to 25 percent from its present level of around 36 percent.

However, since there could be a substantial fall in tax revenue if the Government were to make such a large rate reduction immediately, it is expected that the study group will finally conclude that only a smaller rate cut, of between two to three percent, could be made next year, which would at least demonstrate to investors the Government's commitment to lower the rate.

Nishimura said a rate of under 30 percent may be possible within one year. A more internationally competitive corporate tax rate would immediately encourage investment by both domestic and foreign companies, and, thereby, boost growth in the economy, he said.

It still remains unclear whether the Government is likely to agree with its Tax Commission's final recommendation, although it is known that Prime Minister Shinzo Abe has recently also been in favor of corporate tax reform. An assessment is expected to be announced next month.

The Government has indicated that it may look to broaden the tax base by removing existing tax breaks to lower the rate, to avoid worsening Japan's fiscal deficit position.

TAGS: tax | investment | economics | fiscal policy | foreign direct investment (FDI) | corporation tax | tax rates | tax breaks | tax reform | Japan | Economy | Tax

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