August 23, 2014 5:04 am JST

Japan to curb tax break on capital spending

TOKYO -- The government will end a tax break to promote capital spending at the close of fiscal 2014, aiming to absorb part of the steep decline in tax revenue expected from cutting the corporate tax rate from next fiscal year.

     Companies that increase capital spending by at least 10% on the year have been eligible for a tax credit. By letting the provision expire at fiscal year-end, the government will secure 105 billion yen ($1 billion) more revenue. A tax incentive aimed at spurring investment in efficient cutting-edge equipment over less-productive alternatives will remain in place.

     The government has decided to lower the effective corporate tax rate from around 35% now to less than 30% in several years. Cutting it 6 percentage points would reduce revenue by 3 trillion yen or so. Considering that a 2-point cut next fiscal year would result in a 1 trillion yen shortfall, the 105 billion yen in savings is far from enough.

     Three other provisions will also be allowed to expire. The end of a tax break on registration and licensing for corporate split-ups will save 500 million yen, while eliminating ceramics makers' exemption from the diesel tax will add up to just 40 million yen.

     For additional sources of revenue, the Ministry of Finance is considering stepping up taxation based on business scale and other factors, irrespective of whether the company is making or losing money, and scaling back tax incentives for research and development.

     But industry is voicing strong opposition to both ideas. And within the government, the Ministry of Economy, Trade and Industry is trying to increase tax benefits for R&D.