Tags: japan | economy | corporate tax | abe

Japan's Economic Plan Vows Corporate Tax Reform, Lacks Details

Monday, 09 Jun 2014 09:29 AM

An economic plan being prepared by Japan's government commits it to "corporate tax reform," but resistance from fiscal hawks prevented an outline released on Monday from specifying a cut in the tax rate.

Prime Minister Shinzo Abe says he wants to cut the corporate tax rate, among the highest in the world, to spur business activity — a pledge that is a focus for investors seeking to gauge how strong his policies will be for economic growth.

But the outline of his policy priorities indicated that the issue of corporate tax reform was still "pending" and under discussion by officials, who also need find ways to curb a public debt burden that, at more than twice the size of the economy, is the world's heaviest.

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Abe is expected to announce the economic policies, along with a detailed "growth strategy" of structural reforms, around June 27.

Global investors are keen to see what Abe will offer in this "third arrow" of long-term policies, meant to complement the massive monetary and fiscal stimulus that have started to pull the world's third-biggest economy out of two decades of deflation and sluggish growth.

An early draft of the growth strategy, seen by Reuters last week, promised to overhaul corporate governance, promote technology and attract private investment but left many tough questions unanswered.

Similarly, many of the proposals in Monday's policy outline lacked details on how they would be funded or carried out.

"To stimulate private-sector investment and promote direct investment from abroad, we will press ahead with corporate tax reform," the outline said.

Japan's corporate tax rate is nearly 36 percent for large companies operating in Tokyo. Corporate leaders and investors have long called for a reduction to spur new investment and higher returns.

Private-sector members of the government's top economic and fiscal council have proposed cutting the rate to 25 percent eventually to put it in line with international standards.

Abe has recently begun promising to cut the tax rate, but the policy outline does not specify this. The Finance Ministry and ruling party tax panel say any revenue lost in the tax rate cut should be offset by bringing in alternative revenues.

Each percentage point of tax cuts would reduce government revenue by about 470 billion yen ($4.6 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.

The rate cut would benefit big firms that already pay taxes. Companies such as Fanuc Corp., NTT Docomo Inc. and Central Japan Railway Co. would be among the big winners from the cut, SMBC Nikko Securities reckons.

ECONOMIC REFORM PLAN

The four-page policy outline renews a pledge to decide by the end of the year whether to go ahead with a plan to raise the national sales tax to 10 percent in 2015, and commits to convening a top economic advisory panel twice a year to review Japan's progress on fiscal consolidation.

The politically contentious sales tax hike is seen as a first step towards meeting Japan's aim of halving its budget deficit — excluding new bond sales and debt servicing — in the fiscal year ending in March 2016 and achieving a surplus in the fiscal year that ends in March 2021.

The government's own calculations show that raising the sales tax to 10 percent would be insufficient, by itself, to meet the budget-balancing goal.

The policy outline includes a pledge to stabilize Japan's declining population at around 100 million — representing more than a 20 percent drop — over the next 50 years, a target that outside experts have said would be difficult to reach without allowing more immigration.

The outline appears to rule out widespread immigration, long resisted in this largely homogeneous nation. The government has, however, pressed ahead with plans to allow in more white-collar professionals from abroad and manual workers under a trainee program.

"Use of foreign workers is not an immigration policy," the draft said.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

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An economic plan being prepared by Japan's government commits it to corporate tax reform, but resistance from fiscal hawks prevented an outline released on Monday from specifying a cut in the tax rate.
japan, economy, corporate tax, abe
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2014-29-09
Monday, 09 Jun 2014 09:29 AM
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