TOKYO: Japan’s ruling coalition, by Prime Minister Shinzo Abe to boost profitability and bolster economic growth, has approved a tax reform plan that will cut corporate taxes from April and pledges further reductions in coming years in a bid.
The plan approved by Abe’s Liberal Democratic Party and its coalition partner Komeito would cut the overall effective corporate tax rate by 2.51 percentage points to 32.1 percent from April and then to 31.3 percent the following year.
Abe hopes the tax cuts will encourage companies to raise wages, which would spur consumer spending, and to invest some of the $1.9 trillion in cash held by companies outside the financial sector.
Earlier this year, Abe eliminated a levy on companies imposed in 2012 to help fund disaster relief. He pledged in June to lower the corporate tax rate to below 30 percent over the coming years to help pull Japan out of nearly two decades of deflation.
Chairman of the LDP’s tax panel Takeshi Noda estimated that the corporate tax cut would amount to about 400 billion yen ($3.32 billion) over the next two fiscal years.
Japan’s top effective corporate tax rate is 34.6 percent, among the highest in the major economies. The average corporate tax rate stands around 25 percent among OECD economies.