Corporate Tax Reduction

Prime Minister, Shinzo Abe, announced that the government would reduce corporate tax rate in FY 2015. He explained that he would reform tax system into contributing growth. Less impact of consumption tax hike than expected became the cause of this corporate tax cut. However, small businesses are not accepting much benefit from the reform. Abe’s tax policy may broaden the gap between big business and small business, and the rich and poor.

Current real corporate tax rate, which includes national corporate tax, regional residence tax for corporations and regional business tax, is as much as 35%, about 10% higher than European countries. To encourage investment and other business activities, Abe has been positive on reducing corporate tax mainly posed on big businesses. The administration already abolished corporate tax for reconstruction from Great East Japan Earthquake.

One argument raised in time of tax reduction is how to find compensating budget resource. Experts in executive branch and leading Liberal Democratic Party are looking for a way to raise size-based corporate tax, not only income-based. While small and middle-size corporations have not been posed corporate tax because of its deficits, size-based tax may capture all types of businesses. This system reform would be a burden for those corporations.

Another point is whether surplus in tax income should be included as a resource for the tax cut. Nikkei reported on Sunday that budgetary income of corporate tax in 2013 would exceed governmental expectation by one trillion yen. This surplus could worth 2% of corporate tax cut. Revitalization of Japan economy must be encouraging discussion for the tax reform.

However, some doubt Abe’s positive policy for big business may be related to political maneuvers. As a return for his economic policy, he and his LDP are suspected to be expecting more money from business sector. New President of Keidanren, Sadayuki Skakibara, indicated resuming political donation, which had been abolished. Many saw it as an action of responding corporate tax cut.

While posing epoch making tax hike in consumption tax, Abe administration is easing burden on big businesses. There is still no positive prescription for huge accumulation of governmental deficit, which poses great burden on future generations. Abenomics has never been the final solution for recovering long slump of Japanese economy.