Japan's Cabinet endorses fiscal 2011 tax reform plan

16:46, December 16, 2010      

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The Cabinet of Japanese Prime Minister Naoto Kan approved Thursday recommendations to lower the nation's corporate tax rate next year and introduce incentives for small businesses to increase employment.

Kan said he wanted the nation's corporate tax rate lowered by 5 percentage points from the current 40 percent, which is far higher than the corporate tax rate in other countries like 28 percent in the U.K.

Japan's corporate tax rate being far higher than the global average of between 25-30 percent is seen as driving away domestic investment and quelling potential employment growth in Japan as companies look to set up operations abroad to lower their overheads.

The reduction will cut revenue by between 1.4 trillion yen (16. 61 billion U.S. dollars) and 2.1 trillion yen (24.92 billion U.S. dollars), the Ministry of Finance said.

The recommendations come as part of a set of policy guidelines by a government tax panel which also seek to extend tax breaks for capital gains to boost Japanese stocks and introduce stiffer levies on carbon emissions to help with the battle against global warming.

Japan's Finance Minister Yoshihiko, who heads the Tax Commission, through the proposals aims to accelerate corporate demand to boost the nation's expansion while also creating new revenue to help battle the largest debt-burden in the industrialized world.

As part of the new plans, small companies that increase their workforce will be eligible for a tax writeoff of 200,000 yen (2, 373 U.S. dollars) per person provided they have hired more than five people or increased their workforce by at least 10 percent, according to the panel's proposals and corporate tax for those companies will drop to 15 percent from 18 percent next year, the panel said.

The tax panel agreed to raise levies on fuels including petroleum and coal next year as part of its environmental tax and simultaneous aims to reduce the effects of global warming.

The levy for petroleum will increase by 37 percent to 2,800 yen per kiloliter in three stages through 2015 beginning in October, according to authorities.

However, the 5-point corporate tax cut, whilst easing tax burdens for companies, also includes measures that would result in some 800 billion yen (9.50 billion dollars) worth of tax rises in other areas, which could potentially hamper the quick-fix boost the government is looking to achieve to increase revenue, analysts said.

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