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Japan still wants corporate tax reduction

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Yasutoshi Nishimura, Japan’s Deputy Economy Minister, is the latest government figure to join the calls for a corporate tax rate reduction.

The Shinzo Abe cabinet has already approved a reform plan that would end the 2011 special corporate tax surcharge in March this year – a year ahead of schedule.

This will see the country’s tax on corporate profits drop from 38% to 35.6%, but Nishimura and others want to see it cut further. Nishimura has called for the corporate tax rate to be cut to less than 30% to boost Japan’s competitiveness in the global market.

“I’d like to see deeper corporate tax cuts in the special economic zones,” said Nishimura.

The government is loosening regulations on companies operating in such zones, and a lower corporate tax rate for these regions could be another measure introduced.

“I want to show the direction of special zone tax reductions,” said Nishimura, who repeated his preference for a move to 30% before implementing further reductions down the line.

Revenue neutral approach possible

Akihiro Hironaka, partner at Nishimura & Asahi, points out that removing certain tax preferences that he considers give unequal treatment to different taxpayers, would harvest sufficient revenue to cut the corporate tax rate.

“It appears to me that many outdated special taxation measures, which are more generous to manufacturers than to service providers and retailers, should be abolished, as it is problematic in terms of equal treatment to taxpayers,” said Hironaka. “If the government abolishes these special taxation measures, it will generate substantial government revenues which enable the government to make corporate tax reductions.”

However, achieving the repeal of such provisions may be tougher than expected, due to the likelihood of intense lobbying efforts from those presently benefitting from the measures.

“It will not be easy because industry sectors that have benefited from these special taxation measures will resist strongly,” said Hironaka.

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