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Japan's Coalition Parties Agree Corporate Tax Rate Cut

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

02 January 2015


On December 30, Japan's ruling Liberal Democratic Party and its coalition partner, Komeito, finalized their tax reform plans, including a corporate tax rate cut, to be effective in the next fiscal year, which begins on April 1, 2015.

As part of Prime Minister Shinzo Abe's promised growth strategies, the Government took a decision earlier this year to reduce the country's corporate income tax rate from its current rate of more than 35 percent to below 30 percent over the next few years, so as to reach a more internationally-competitive level.

As the first steps in that plan, it has been decided by the parties that the headline corporate tax rate will be cut by 2.51 percent to 32.11 percent in the 2015 fiscal year, and then to 31.33 percent in 2016. Further rate cuts can then be expected in succeeding fiscal years.

The Government had previously indicated that corporate rate cuts would only be possible with other measures to offset most of the consequent revenue losses, given Japan's fiscal deficit position. However, while much of the lost revenue from the rate reduction will be offset by broadening the corporate tax base, it is estimated that the 2015 rate reduction will still cost around JPY300bn (USD2.5bn) in lost revenue.

With only around 30 percent of Japan's companies presently paying corporate tax because of previous losses, the base-broadening reform proposals include a reduction in the amount of declared business income that can be written off to cover previous losses. The current limit of 80 percent will decrease to 50 percent in April 2017.

Other measures have been added to the package in an attempt to encourage the transfer of the wealth that is concentrated in Japan's older generations towards younger people. A gift tax exemption will be given to parents or grandparents that fund marriages and childcare, and the current JPY10m exemption limit for gifts to pay for their offspring's housing will be extended to 2019. It will also be increased to JPY15m in 2015 (and JPY30m in 2016) for purchases of energy-saving homes.

TAGS: individuals | tax | business | corporation tax | tax rates | gift tax | tax breaks | tax reform | Japan

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