Abe unveils plan to cut corporate tax rate to spur
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[June 13, 2014]
By Tetsushi Kajimoto and
TOKYO (Reuters) - Japanese
Prime Minister Shinzo Abe unveiled a plan on Friday to
cut the corporate tax rate below 30 percent in stages
over a few years from the next fiscal year to help pull
the economy out of two decades of sluggish growth and
deflation. Investors have been scrutinising whether
Japan can substantially lower the corporate tax rate -
among the highest in the world - to spur growth in the
world's third-largest economy.
Abe also needs to strike a delicate balance between stimulating
growth and reining in snowballing public debt, twice the size of its
$5 trillion economy. The corporate tax cut is seen as a major issue
to be included in the government's key fiscal and economic policy
outline, which will be finalised around June 27 along with a
detailed "growth strategy" of structural reforms.
"Japan's corporate tax rate will change into one that promotes
(economic) growth," Abe told reporters, adding that he hoped the
lower burden on companies would lead to job creation and an
improvement also for private citizens.
He also said the government would make sure that alternative revenue
sources are secured to offset a decline in corporate tax revenue,
but did not elaborate.
The government said later on Friday, in its draft economic and
fiscal policy outline, it would decide on a concrete plan by the
year's end to secure a "permanent revenue source" needed for
corporate tax cuts, such as by broadening the tax base.
An alternative revenue source must be secured permanently so that
Japan can achieve its aim of bringing its primary budget balance -
excluding new bond sales and debt servicing - into the black in the
fiscal year to March 2021, it said in the draft.
The government reiterated it would decide by the year-end whether to
go ahead with its plan to raise the sales tax to 10 percent in
October 2015. The national sales tax rose to 8 percent from 5
percent on April 1 in a bid to fix the public debt.
Japan's corporate tax rate is nearly 36 percent for large companies
operating in Tokyo, among the highest in the industrialised world.
Private-sector members of the government's top economic and fiscal
council have proposed cutting the rate to 25
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percent eventually to put it in line with international standards.
The finance ministry and ruling party tax panel counter that any
revenue lost in the tax rate cut should be offset by bringing in
alternative fixed revenues, rather than counting on any increase in
tax revenue brought by higher economic growth. Each percentage point
of tax cuts would reduce government revenue by about 470 billion yen
($4.61 billion) a year, according to the finance ministry. At the
same time, only 30 percent of all Japanese firms pay corporate
income tax, so fiscal hawks want many more brought onto the tax
rolls to offset a cut in the tax rate. Most loss-making firms in
Japan are exempted from paying corporate tax and companies can defer
losses over several years, making it easier for them to avoid paying
(Additional reporting by Yuko Yoshikawa; Editing by Chang-Ran Kim
and Jacqueline Wong)
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