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Corporate tax revenue can rise despite rate cut: officials

TOKYO -- Higher corporate tax revenue is possible even with a lower tax rate so long as an economy is growing, nongovernment members of the Japan's official fiscal policy council will argue, citing evidence from abroad.

     Their findings will help make the case for cutting Japan's top effective corporate tax rate, one of the highest in the developed world. Proponents face the daunting counterargument that a tax cut would leave a gaping hole in the budget.

     University of Tokyo economist Motoshige Ito and his nongovernment colleagues on the Council on Economic and Fiscal Policy studied corporate tax receipts in the U.K. and Germany from 1995 to 2012 and in South Korea from 2000 to 2012.

     The U.K. lowered its corporate tax from 33% to 23%, yet revenue from the tax climbed an average of 4.8% a year. The council members attribute 4.5 percentage points of this rise to an economic-growth-driven increase in taxable income.

     In South Korea, a 6-point-plus corporate tax cut coincided with an 8.4% gain in receipts, 6.5 points of which the members chalk up to higher profits. But factors besides a lower tax, including deregulation and weakening currencies, also appear to have contributed to economic growth in both countries.

     Germany, which slashed its top corporate tax rate by 25 percentage points, also took steps to broaden the tax base, such as overhauling rules on depreciation allowances. Corporate tax revenue rose 5.6%, with the boost from the base-expanding steps, at about 6.4 points, outweighing the roughly 3.7-point negative effect of the rate cut.

     The council members' findings will be reflected in economic and fiscal policy guidelines due out around midyear.


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