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Japan's Prime Minister Shinzo Abe has called on his ruling Liberal Democratic Party's (LDP) tax panel Tuesday to compile a fixed proposal of the details of a corporate tax cut plan as part of the government's bid to overhaul its economic and fiscal policies to be ratified this month.
Takeshi Noda, the chairman of the ruling LDP's tax panel, said he met with Abe and other executive members of the panel earlier Tuesday and was requested by the premier to liaise closely with Akira Amari, minister of state for economic revitalization, on the government's new lowered corporate tax rate policy, with the policy to come into effect from fiscal 2015.
Abe had previously stated that he planned to expedite his structural reforms policies, comprising his yet to be seen "third arrow" of his aggressive "Abenomics" brand of economic strategies, which along with agricultural reforms, plans for revamping regular working hours and the more efficient deployment of foreign workers, also include lowering corporate taxes to more internationally competitive levels.
The plans regarding the lowering of corporate taxes will be finalized by the end of the month, the prime minister said, with Noda also stating that Finance Minister Taro Aso had also signed off on the idea for the first time Tuesday, following his prior reluctance due to the potential loss of revenue.
Aso told a press conference that if "stable resources are secured" to make up for the deficit then a corporate tax cut would be acceptable. Aso had been reluctant to the move as the government is still struggling to get its fiscal house in order, with public debt still the worst in the industrialized world at more than twice the size of Japan's economy.
But sources close to the matter said that Noda and the tax panel are concerned that it will be difficult to cover the deficit if corporate taxes are lowered and that the benefits may only be short-lived, and are leaning on Abe to initiate more concrete measures towards fiscal rehabilitation, before fully committing to the assumption that the lowering of corporate taxes will automatically attract more foreign investment.
The panel has suggested that to help balance tax revenues going forward, the government should base its expansion of corporate taxation based on external standards to ensure that both profit- making and loss-making companies are covered.
As things stand, only 30 percent of Japanese companies are eligible to pay corporate taxes, with the remaining 70 percent exempt due to the amount of red ink on the books at the end of each fiscal year.
But Abe feels that further revenues can be generated if more foreign countries can be persuaded to invest here by competitive tax rates. Currently Japan's corporate income tax rate stands at 35 percent, about 10 percent higher than levels in both China and South Korea.
