TOKYO -- The government and the ruling coalition have agreed on the basic outline of next fiscal year's tax reforms, including a 2.51 percentage point reduction in the effective corporate tax rate.
Now that discussions on nearly all major tax items have wrapped up, the Liberal Democratic Party and coalition partner Komeito will approve their reform proposal Tuesday.
For the first year, companies will likely enjoy an actual tax cut of more than 300 billion yen ($2.4 billion). The corporate tax is to go down more than 3 percentage points over two years through fiscal 2016. Businesses in Tokyo now pay an effective rate of 35.64%.
The reform proposal will have the government secure alternative sources of revenue partly by expanding the size-based tax on large corporations, which is levied regardless of whether a business generates profits. Alternative revenue sources will fill an estimated 850 billion yen of the roughly 1.2 trillion yen hole created by cutting the corporate tax rate by 2.51 points next fiscal year.
Taxes on minivehicles are slated to rise next April. To blunt the impact on household budgets, this class of small vehicles will qualify for tax breaks on fuel-efficient cars. Minivehicle taxes are to be cut 25% for achieving fiscal 2020 fuel economy targets and 50% for exceeding the targets by 20%.
Eco-car tax breaks for standard autos will be introduced to encourage consumers to replace their vehicles with more efficient ones starting next fiscal year. The automobile acquisition tax will be slashed 60% for hitting fiscal 2020 fuel economy targets and 80% for beating the targets by 10% -- and waived altogether for exceeding the targets by 20%. The weight-based tax levied when cars are inspected will also be cut 50%, 75% and 100%, respectively.
Cars failing to meet the fiscal 2020 fuel economy targets will get some tax breaks as long as they hit the current fiscal 2015 targets.
Measures are also planned to encourage the transfer of wealth to younger people and stimulate homebuying. The gift tax is now waived on up to 10 million yen given by parents, grandparents and others for home purchases. This tax break will be extended until June 2019, and the ceiling will rise to 15 million yen for energy-saving homes in 2015 and then to 30 million yen for such homes for a year starting in October 2016.