June 18, 2014 6:04 am JST

Make money-losing companies pull their weight: business consultant

TOKYO -- Japan should offset the revenue drop from a corporate tax cut by expanding levies pegged to business size rather than profitability, the head of management support firm Industrial Growth Platform Inc. argues.

     "It's wrong that about 70% of companies aren't paying corporate taxes," Chief Executive Officer Kazuhiko Toyama told The Nikkei in a recent interview. "Businesses (bleeding red ink) also use roads and are served by police and fire departments."

     Business-size-based taxes must be paid by even money-losing companies. Strengthening these levies would force low-productivity players to fold, leading to the restructuring of industries, Toyama said.

     "High wages, high energy costs, tough labor regulations and a high corporate tax rate are among the factors discouraging investment in Japan," he said. "The lower the corporate tax rate, the better. However, that alone won't have a dramatic effect."

     The government's growth strategy lays out a plan to reduce the effective corporate tax rate starting in fiscal 2015. Although a decision on how to pay for the cut was put off to the end of the year, Toyama said the plan is generally reasonable as it now stands because it points out the goal of regaining fiscal soundness in fiscal 2020 and states the need for permanent sources of revenue.

     Toyama expressed concern that the language of the growth strategy could be interpreted to mean that the increase in tax revenue can be used to cover the shortfall resulting from a lower corporate tax rate.

     "I believe that revenue neutrality is necessary," Toyama said. "Right now, in Japan, fiscal consolidation and economic growth are mutually dependent. All policies must take both aspects into consideration or we'll send the wrong message to the international community. If those abroad think that we're no longer serious about fiscal discipline, then Japanese government bonds will be sold and interest rates will go up. That would spell doom for Abenomics."

     Asked how Japan should finance the tax cut, Toyama replied that it should first work within the scope of corporate taxes and then look elsewhere if those efforts are not enough. The fixed-asset tax would be a candidate, he said.