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AKIPRESS.COM - Japanese Prime Minister Shinzo Abe unveiled a plan on Friday to cut the corporate tax rate below 30 percent in stages over a few years from the next fiscal year to help pull the economy out of two decades of sluggish growth and deflation.
Investors have been scrutinizing whether Japan can substantially lower the corporate tax rate - among the highest in the world - to spur growth in the world's third-largest economy, Reuters said.
Abe also needs to strike a delicate balance between stimulating growth and reining in snowballing public debt, twice the size of its $5 trillion economy.
The corporate tax cut is seen as a key issue to be included in a package of broad fiscal and economic policies, which will be finalised around June 27 along with a detailed "growth strategy" of structural reforms.
"Japan's corporate tax rate will change into one that promotes (economic) growth," Abe told reporters, adding that he hoped the lower burden on companies would lead to job creation and an improvement also for private citizens.
He also said the government would make sure that alternative revenue sources are secured to offset a decline in corporate tax revenue, but did not elaborate.
Japan's corporate tax rate is nearly 36 percent for large companies operating in Tokyo, among the highest in the industrialized world. Private-sector members of the government's top economic and fiscal council have proposed cutting the rate to 25 percent eventually to put it in line with international standards.
The finance ministry and ruling party tax panel counter that any revenue lost in the tax rate cut should be offset by bringing in alternative fixed revenues, rather than counting on any increase in tax revenue brought by higher economic growth.
Each percentage point of tax cuts would reduce government revenue by about 470 billion yen ($4.61 billion) a year, according to the finance ministry. At the same time, only 30 percent of all Japanese firms pay corporate income tax, so fiscal hawks want many more brought onto the tax rolls to offset a cut in the tax rate.
Most loss-making firms in Japan are exempted from paying corporate tax and companies can defer losses over several years, making it easier for them to avoid paying taxes.
($1 = 101.9400 Japanese yen)