Japan is considering tax reform to attract foreign financial firms and skilled workers in an effort to improve the country’s standing as a global financial center, the Financial Services Agency said in annual policy guidelines released yesterday.
While Japan has sought for years to lure foreign professionals, experts said Tokyo needed to tackle issues including a relatively high tax rate and a lack of English-language fluency in the workplace.
“To improve business environment for foreign financial firms, we will comprehensively consider concrete ways such as human resources development, tax reform and budgetary measures,” the policy guideline said, without elaborating on when changes would be made.
Japan’s ruling Liberal Democratic Party had proposed visa support and streamlining approvals for investment management licenses, but there was no mention in those plans of tax reform.
Japanese Prime Minister Shinzo Abe, who last week said he would resign, had suggested in parliament that Japan could take in Hong Kong residents who worked in the financial sector or other specialized areas.
Hong Kong’s corporate tax rate of 16.5 percent is a little over half that of Japan’s and Australia’s, and among the lowest in the region.
China’s National People’s Congress Standing Committee in June passed national security legislation for Hong Kong, raising fears among democracy activists and some foreign governments that Beijing is further eroding autonomy there.
The Financial Services Agency also said it would use more English in administrative procedures to make it easier for foreign firms to start businesses in Japan.
Tokyo ranked third in Z/Yen Group’s rankings of global financial centers published in March, up from sixth place in September last year, while Hong Kong, which had faced domestic political turbulence, fell from third to sixth place.
Separately, Fumio Kishida, a senior LDP official seen as among candidates to succeed Abe, yesterday voiced caution over the idea of cutting the sales tax rate to help the economy weather the hit from the COVID-19 pandemic.
“The sales tax is a source of revenue to pay for Japan’s social welfare burden,” Kishida told a television program, when asked if he opposed cutting it from the 10 percent rate.
“Cutting the tax rate would burden small and midsize companies with additional costs” such as adjusting their cashier systems to adapt to a new tax rate, he said.
The government’s decision to raise the sales tax to 10 percent from 8 percent in October last year pushed Japan’s economy into recession, even before COVID-19 hammered consumption and exports this year.
Kishida said Japan must continue to take fiscal and monetary measures to support the economy, as demand would not bounce back strongly due to the expected prolonged battle with COVID-19.
A group of LDP lawmakers has recently called on the government to consider cutting the sales tax to cushion the pandemic’s blow on households — an idea senior officials have ruled out so far.
Japan has raised the sales tax twice under Abe’s administration as part of efforts to rein in the country’s huge debt which, at twice the size of its economy, is the biggest among major advanced economies.
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