Sat, Jun 14, 2014 - Page 15 News List

Abe targets cuts to corporate tax

AWAITING DIET:If it is approved, the plan is to see the rate drop below 30 percent within a few years in a move said to be in the right direction, but still not enough

Bloomberg and AFP, TOKYO

Japanese Prime Minister Shinzo Abe said he aims to start cutting Japan’s corporate tax rate next year, after winning agreement from senior ruling party members on a measure to spur investment in the world’s third-largest economy.

Abe, speaking to reporters in Tokyo after a meeting with Japanese Minister of Finance Taro Aso and Japanese Minister of Economy Akira Amari, said the plan would bring the rate to below 30 percent in a few years. He said alternative revenue will be secured for the move, which requires approval from the Diet.

Amari told reporters that he had reached an agreement on Thursday evening with the tax commission head of Abe’s ruling Liberal Democratic Party.

The proposed cut, a key element of Abe’s “third arrow” of structural changes, comes as household budgets are squeezed by an increase in the sales levy in April. Failure to find extra funds risks worsening the world’s largest debt burden.

“It’s a big political step to show the direction of corporate tax cuts alongside the next planned sales-tax increase,” said Kyohei Morita, chief Japan economist at Barclays PLC in Tokyo. “It’s a step in the right direction, but short in terms of distance.”

The current corporate tax rate of about 35 percent is the second highest in the G7. It compares with levies of about 24 percent in South Korea and 23 percent in the UK, according to Japanese Ministry of Finance data.

Meanwhile, a Japanese government panel yesterday gave Abe more than 200 deregulation proposals across various sectors, including the health and agricultural fields, which are aimed at snipping Japan’s notorious red tape. Most are expected to be adopted later this month.

“We have received powerful proposals designed to boldly cut longstanding regulations,” Abe told the panel. “From now on, I would like to show results.”

Doubters say that despite his rhetoric, Abe will not be able to deliver a wider overhaul of the economy, including shaking up rigid labor markets and taking on a powerful agricultural sector that opposes free-trade deals.

Meanwhile, the Bank of Japan yesterday held off expanding its stimulus program and said the economy was recovering.

Policymakers agreed to hold off any further measures after a two-day meeting, but the central bank acknowledged that consumer demand and factory output had taken a hit after the April 1 tax hike, prior to which millions of shoppers went on a nationwide buying spree.

“Japan’s economy is expected to continue a moderate recovery as a trend, while it will be affected by the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike,” the bank said in a statement.

The central bank’s target of achieving 2 percent inflation by next year was also on course, it added.

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