Japan Plans Staged Reductions to Corporate Tax Rate

Japan’s prime minister, Shinzo Abe, confirmed that the government plans to reduce the country’s corporate tax rate below 30% in stages in the latest move to revive the economy following more than 20 years of sluggish growth and deflation.

A lower corporate tax rate is one of the main issues to feature in the government’s key fiscal and economic policy outline, scheduled to be finalised around 27 June along with a detailed ‘growth strategy’ of structural reforms.

“Japan’s corporate tax rate will change into one that promotes growth,” Abe announced, “We will aim to reduce it to somewhere in the 20s [per cent] within several years. We will start next year and we will firmly secure other revenue sources,” although no details were offered on what the alternative sources might be. Abed added that he hoped the lower burden on companies would lead to job creation and also benefit private citizens.

Although reduced from 38% last December, Japan’s current corporate tax rate of 35.6% is the second highest among Group of Seven (G7) nations and compares with levels of 29% in Germany, 24% in South Korea, 23% in the UK and 17% in Singapore. However as many Japanese businesses are unprofitable this, combined with various loopholes, exemptions and credits, means that in practice a majority of companies pay no tax at all.

Some of the prime minister’s advisers have proposed ultimately cutting the rate to 25%, in line with the Organisation for Economic Cooperation and development (OECD) average.

The government also reiterated it would decide by year-end whether to go ahead with its plan to raise Japan’s national sales tax to 10% in October 2015. The rate rose to 8% from 5% on 1 April this year in a move to reduce Japan’s huge national debt.

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