Nishimura Says Japan to Reduce Company Tax Rate by April ’15

Japan will begin significant cuts to the corporate tax rate by April 2015, aiming to make the country more competitive and fuel a recovery driven by government spending and record monetary stimulus, said Deputy Economy Minister Yasutoshi Nishimura.

“Japan needs more foreign direct investment and we want to do more to encourage corporations to invest here,” Nishimura said yesterday in an interview with Bloomberg News in New York. The government plans to outline in June more details on measures to make it easier to do business in Japan, he said.

Japan’s effective tax rate of about 36 percent is the second-highest in the Group of Seven after the U.S. and compares with levies of about 24 percent in South Korea and 23 percent in the U.K. “We want to come up with a road map that gets us much closer” to a rate below 30 percent, Nishimura said.

Finding alternative sources of tax revenue will be key to whether the corporate levy can be cut, Nomura Securities Co. economists including Tomo Kinoshita said in a research report yesterday. “The debate is likely to come to a head in May,” they wrote, adding that the prospects for reductions starting in the fiscal year from April 2015 “have improved slightly.”

Weak Exports

It’s desirable to reduce the effective corporate tax rate to the 20 percent range as soon as possible, while maintaining consistency with government’s goal of restoring fiscal health, Economy Minister Akira Amari said yesterday, according to national broadcaster NHK. Finance Minister Taro Aso has said any cut in the levy must be accompanied by a rise in revenue from other sources to avoid worsening the fiscal position of a government with the world’s heaviest debt burden.

Stimulating growth has become more important after Japan last week reported a 1.8 percent rise in the value of shipments overseas from a year earlier, the weakest export growth in a year, according to data released by the Ministry of Finance on April 20. The result compared with a 6.5 percent median estimate of 27 economists in a Bloomberg News survey.

An 18.1 percent jump in imports helped widen the deficit to the biggest ever for the month. This comes even after the Bank of Japan’s unprecedented stimulus helped weaken the yen about 18 percent against the dollar last year.

Growing Inflation

“We are concerned that even though the yen got weaker, exports haven’t grown, and we are analyzing that,” Nishimura said in the interview. He attributed part of the export weakness to a focus on domestic demand, manufacturers moving production overseas and a weakening in the competitiveness of electronic appliance companies. “After April, domestic demand will weaken, allowing exports to grow,” he said.

Japan’s economy is growing, he said, and inflation should speed up to the Bank of Japan’s 2 percent target. The BOJ yesterday stuck with a plan for an annual increase in the monetary base of between 60 trillion yen and 70 trillion yen ($685 billion) as it implements monetary easing to generate inflation.

“Some in the private sector are rather skeptical, however our view of fundamentals” is in sync with the Bank of Japan, he said. “The BOJ will maintain monetary easing toward the 2 percent target, and if needs be they will take additional measures.”

Japan will reach the 2 percent inflation goal next fiscal year, BOJ Governor Haruhiko Kuroda said yesterday, after the central bank released its forecasts for the economy and prices.

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