Japan is considering a reduction in corporate taxes as part of a planned package to cushion the economy from raising the national sales levy, Economy Minister Akira Amari said.
Paring income taxes is another option, while a lower priority, Amari told reporters in Tokyo. Prime Minister Shinzo Abe earlier this month instructed officials to compile a plan by the end of September to counter the blow from a scheduled 3 percentage point bump in the consumption tax in April, to 8 percent.
Lowering the effective corporate tax rate, which is more than double that of Singapore, would boost Japan’s competitiveness, while helping to offset the economic blow from a sales-tax increase. While a reduction is backed by industry chiefs, Abe is forecast to run into opposition at the Finance ministry, which may be reluctant to lose revenue.
“We estimate about 4 trillion yen to be shaved off from nominal GDP from the sales-tax increase, so we expect stimulus measures to cover that,” said Masahiko Hashimoto, economist at Daiwa Institute of Research Ltd., referring to gross domestic product unadjusted for changes in prices.
Japanese stocks rose today, with the Topix index posting its first back-to-back weekly gain since July, closing up 0.1 percent. The yen was 0.3 percent weaker against the dollar at 99.80 at 4:06 p.m. in Tokyo.
“We and the finance ministry may have a different opinion on what our finances will allow, but in any case, we will take the best and most appropriate policy within this limit,” Amari said.
Cutting the corporate tax would have “a very limited effect” as about 70 percent of Japanese companies don’t pay the levy, Finance Minister Taro Aso told reporters today in Tokyo.
Japan’s corporate-tax rate of 35.6 percent includes local and national components and compares with 25 percent in China and 17 percent in Singapore, according to the finance ministry. Organization for Economic Cooperation and Development data show Japan has the second-highest rate of member nations, after the U.S. The rate is now 38 percent because of a three-year increase to fund reconstruction after a 2011 earthquake and tsunami.
“Our main scenario envisages a supplementary budget of the order of 5 trillion yen ($50 billion) or so, and although a reduction in the corporate tax rate has surfaced as a topic, our view is that any major cut will have to wait until fiscal year 2015 or beyond,” Daiju Aoki, senior economist for Japan at UBS AG in Tokyo, wrote in a Sept. 9 research note.
Abe will decide on Oct. 1 whether to increase the sales tax to 8 percent in April from 5 percent now. He has said he wants to take into account the strength of the economy before making the decision.
In its monthly assessment on the economy released today, the government said that deflation, which has stymied growth for more than a decade, is ending and that the economy is on the way to a recovery at a moderate pace. Consumer prices rose 0.7 percent in July from a year earlier, the biggest increase since 2008.
The Cabinet Office on Sept. 9 revised up its estimate of second-quarter economic growth to 3.8 percent from the previous quarter, after initially reporting a 2.6 percent expansion.