Japan plans to slash over $14 billion corporate tax

TOKYO - Reuters

Japanese Prime Minister Shinzo Abe delivers a speech in this file photo. AP photo

Japan’s government will include more than $14.1 billion in corporate tax cuts in an economic stimulus package intended to offset the blow from planned sales tax hikes, the Nikkei newspaper reported on Sept. 20.

The tax breaks, which are worth 1.4 trillion yen, will be part of an economic stimulus in excess of 5 trillion yen, the Nikkei said, as Prime Minister Shinzo Abe prepares to approve on October 1 an increase in the sales tax needed to pay for welfare spending.

The sales tax hike is the biggest effort in years by the world’s third-largest economy to contain public debt of more than $10 trillion, which at more than twice the value of gross domestic product is the largest burden among major economies.

Some of Abe’s senior ministers have openly cautioned that the tax hike could derail the escape from deflation. The corporate tax cuts are expected to buffer the economy from such risks and ensure Abe’s cocktail of aggressive fiscal and monetary stimulus puts growth on a sustainable footing over the long-term.

The government will use reserves from last year’s budget and extra tax revenue from the current fiscal year to fund the stimulus package, but if the size of the package increases it may be difficult to avoid issuing new debt, the Nikkei said. The government will end a temporary increase in the corporate tax from fiscal 2014, one year earlier than planned, which will save companies 900 billion yen, the Nikkei said without citing sources.

These steps would lower the effective corporate tax rate to 35.6 percent next fiscal year from 38.0 percent currently, the Nikkei said. The government will also offer 500 billion yen in tax breaks on capital expenditure spending from the current fiscal year, the Nikkei said.

The scheme also includes 1 trillion yen in public works spending for the Tokyo Olympics in 2020, 300 billion yen in handouts to low-income earners and 400 billion yen in tax breaks for new home owners, the Nikkei said.