TOKYO -- Japan on Thursday moved closer to cutting its corporate tax below 30%, with a plan for reducing the effective rate to 29.97% next fiscal year, clearing an important hurdle in the ruling coalition.
This rate, which represents the portion of corporate income paid in central and local government taxes, now stands at 32.11%. The ruling bloc seeks to lower it for the third year running.
Tax policy councils in Prime Minister Shinzo Abe's Liberal Democratic Party and junior coalition partner Komeito approved the cut as part of a tax reform plan for the fiscal year beginning April 1.
The parties will try to agree Friday on exempting food from a consumption tax hike slated to take place in April 2017. Once that issue is settled, they will formally approve the tax plan.
Corporate tax reform plays a central role in the Abe government's strategy of encouraging companies to invest in Japan and raise wages. The plan, as approved by the policy councils, calls for a further cut to 29.74% in fiscal 2018, making for a total reduction of more than 7 percentage points from fiscal 2013. Revenue losses would be offset by steps including an expansion of a standard tax that applies to businesses of a certain size regardless of whether they make a profit.
Business leaders welcomed the proposal.
"The normal course of capitalism is to let the new replace the old, not to have zombie companies holding back the economy," said Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, or Keizai Doyukai.
For the many money-losing small and midsize enterprises that would not benefit from a lower tax on income, the plan calls for a three-year, 50% property tax reduction on newly purchased machinery and other fixed assets.
The plan also seeks to boost the agricultural sector's competitiveness in preparation for the Trans-Pacific Partnership free trade agreement, which will lower tariffs on imported goods. Proposals include a tax break for landholders who lease their fields through a government-backed land bank and a higher tax on unused farmland. Both ideas are meant to encourage farm consolidation.
Other aspects of the plan seek to cushion the blow from the consumption tax going up from 8% to 10% in 2017. A new, fuel-economy-based vehicle tax, to replace the automobile acquisition tax at that time, will provide relief for car buyers. Under the new scheme, the most environmentally sound cars will be afforded tax-free status.
As for the lower consumption tax on food, the LDP is expected to concede to Komeito's demand to include both fresh and processed comestibles. Senior LDP officials had opposed this idea but were brought into line by the prime minister's office.