TOKYO (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.
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 per cent from April and then to 31.3 per cent the following year.
Abe pledged in June to lower the corporate tax rate to below 30 per cent 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.
Japan’s top effective corporate tax rate is 34.6 per cent, among the highest in the major economies. The average corporate tax rate stands around 25 per cent among OECD economies.
But after a decade of slow growth only about 30 per cent of companies actually pay taxes. The rest are either unprofitable or have been able to apply credits from prior losses.