Japan's
ruling coalition approves corporate tax cuts to spur
growth
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[December 30, 2014]
By Kaori Kaneko and Yuko Yoshikawa
(Reuters) - Japan's ruling coalition has
approved a tax reform plan that will cut corporate taxes from April and
pledges further reductions in coming years in a bid by Prime Minister
Shinzo Abe to boost profitability and bolster economic growth.
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The plan approved by Abe's Liberal Democratic Party and its
coalition partner Komeito on Tuesday would cut the overall effective
corporate tax rate by 2.51 percentage points to 32.1 percent from
April and then to 31.3 percent the following year.
Abe pledged in June to lower the corporate tax rate to below 30
percent over the coming years to help pull Japan out of nearly two
decades of deflation. Earlier this year, he eliminated a levy on
companies imposed in 2012 to help fund disaster relief.
Takeshi Noda, chairman of the LDP's tax panel, estimated that the
corporate tax cut would amount to about 400 billion yen ($3.32
billion) over the next two fiscal years.
Abe hopes the tax cuts will encourage companies to raise wages,
which would spur consumer spending, and to invest some of the $1.9
trillion in cash held by companies outside the financial sector.
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Japan's top effective corporate tax rate is 34.6 percent, among the
highest in the major economies. The average corporate tax rate
stands around 25 percent among OECD economies.
But after a decade of slow growth only about 30 percent of companies
actually pay taxes. The rest are either unprofitable or have been
able to apply credits from prior losses.
In a change aimed to broaden the tax base, established companies
would only be able to apply losses to write off half of reported
income from 2017. That limit is currently 80 percent.
The ruling coalition estimates it will be budget neutral in the
third year as steps such as broadening the tax base will help cover
shortfalls caused by the tax cut.
"The focus is whether companies will pass funds arising from the tax
cuts to capital spending and wage increases, which will lead to
economic recovery," said Satoshi Osanai, economist at Daiwa
Institute of Research.
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"We think it will be difficult to achieve budget neutral in the
third year. And in a long-term perspective, it will be an issue how
the government will secure revenues and manage fiscal
reconstruction."
Japan's economy unexpectedly slipped into recession this year after
an increase in the national sales tax in April hit consumer
spending.
The tax plan recommits to a further increase in that consumption tax
to 10 percent from 2017.
It also expands the Nippon Individual Saving Account program, which
launched this year. That program allows individual investors to
invest up to 5 million yen in stocks without being subject to taxes.
The changes will allow larger annual investments and allow for
investments on behalf of children. There were 7 million NISA
accounts as of June.
($1 = 120.4300 yen)
(Additional reporting by Takaya Yamaguchi, writing by Kevin Krolicki;
Editing by Kim Coghill)
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