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Japanese 2016 Budget Approved By Diet

by Mary Swire,, Hong Kong

01 April 2016

On March 29, the Japanese Parliament enacted into law the Government's 2016 fiscal year (FY) Budget, which uses a three percent expected rise in tax revenues from higher corporate profits and wages to fund, in particular, increased social security spending.

Passage of the Budget through the Diet has confirmed that Japan's corporate tax rate is to be reduced further than had been expected in FY2016, as part of an effort to boost business investment. While the rate had previously been scheduled to fall to 31.33 percent, a deeper tax cut will now establish a tax rate of 29.97 percent this year. This will be cut further to 29.74 percent in FY2018.

The budgetary package also includes a 50 percent three-year fixed asset tax break to businesses on new purchases of machinery and equipment, and a new simplified car tax framework based on fuel efficiency. The new framework, under which more cars are expected to be taxed at lower rates, will replace the country's vehicle acquisition tax from April 2017.

The Budget also specifies the range of products that will continue to be subject to the current eight percent consumption tax rate when the headline rate is planned to increase to 10 percent in April 2017. For example, the lower rate will be retained for all fresh and processed food and for beverages, with the exception of alcoholic drinks.

Following enactment of the Budget, Prime Minister Shinzo Abe is now expected to concentrate on whether further action is required to boost the currently weak Japanese economy. It is being suggested that a fiscal stimulus package of around JPY5 trillion (USD44.4bn) may be necessary later this year. In addition, Abe still has to decide whether the April 2017 consumption tax rate rise should go ahead as programmed.

TAGS: tax | investment | business | value added tax (VAT) | sales tax | fiscal policy | law | budget | corporation tax | food | legislation | tax rates | Japan | business investment

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