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Japan's Abe Confirms Corporate Tax Cuts From 2015

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

17 June 2014


Prime Minister Shinzo Abe has confirmed that Japan's effective corporate tax rate will be reduced from its current rate of up to 36 percent to below 30 percent in the next few years. A first cut is expected to occur in the 2015 fiscal year.

Such an announcement had been expected since both the Government's and the ruling Liberal Democratic Party's (LDP) tax panels recently agreed to the policy, although it is unlikely that the Government's program will stipulate that the corporate tax rate should eventually be reduced as far as 25 percent, as had been suggested by the Government tax panel.

While Abe did not indicate the extent of the first rate cut next year, he has agreed with the LDP's tax panel that the Government should find stable future funding to cover the consequent fall in tax collections, so as not to worsen Japan's fiscal deficit and public debt position. The Government aims to return to a primary fiscal balance (not including debt-servicing costs) in 2020.

Corporate tax cuts will now form a major part of the Government's 2015 policy framework, which will concentrate on Abe's promised growth strategies. This framework should be finalized by the end of this month.

It has been suggested that the final corporate tax reform details, to be announced before the end of this year, will ally the tax rate reductions with a broadening of the tax base by restructuring existing tax breaks.

In addition, given that only some 30 percent of Japanese firms currently pay corporate tax, due to previous losses, the Government may adopt a recommendation by the LDP panel that corporate tax revenues could be made more stable in economic downturns. This would involve a change to Japan's corporate tax code, at least in part, from a profit-based system to a size-based system, possibly based on capital utilization.

TAGS: tax | economics | fiscal policy | corporation tax | tax rates | tax breaks | tax reform | Japan

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