(HARA Eiji, PPPC President)
Since this June, Prime Minister Shinzo Abe has announced to “reduce the corporate tax from the next fiscal year.”
Traditionally in the Liberal Democratic Party, the party’s Tax Commission has had more influences with regard to the tax system than the Cabinet. In the last year’s budget-compiling process, too, it only resulted to termination of the special corporate tax for reconstruction, i.e., 38% to 35% in effect which had already been agreed even though Prime Minister Abe had shown a strong decisiveness to reduce the corporate tax.
This year, given the Prime Minister Abe’s remarks at many occasions, it seems that certain agreements have already been made with the ruling party and some message will likely be released within this month in eye of the Basic Guideline for Economic and Fiscal Policy and new growth strategy to be released in this June.
Yet, the question is how much reduction will be arranged.
In contrast to Japan’s 35%, the average rate in the OECD countries (except Japan) is 25%. There are wide discrepancies even with the neighboring countries such as Hong Kong’s 16.5%, Singapore’s 17%, and South Korea’s 24%.
Such gaps give global companies reasons to transfer their basements abroad and it derives domestic people of their employment opportunities.
Although Abe announced in Davos in January “to reduce the corporate tax to an internationally-compatible standard,” now it is a test for Abe whether to really keep his own words.
Nonetheless, so far as the government discussions are going on, it isn’t clear whether the Cabinet will really implement such drastic reductions.
For example, a document submitted by a private-sector member to the Council on Economic and Fiscal Policy on May 15 suggested that the government seek a tax reduction to some below-30 percent as a temporary measure in eye of 25% in the future, in a bid to realize “the easiest country to do business.”
As the “below-30%” means “29.**%,” the intension of this proposal can be read as
l Reducing the tax rate by 5-6% in the coming several years
l To 25% in the later future
So, it will be long later when the country really becomes an “easiest country to do business.”
In government panels, the general pattern is that private-sector members make drastic suggestions at first and discussions reach moderate conclusions as result of consultations. But this time, the private-sector member’s suggestion is already so moderate that gives us unsatisfactory impressions. Please note that “reduction by 5-6% in the coming several years” is more passive than a “5% decrease on surface (35% in effect)” suggested in the past Democratic Party of Japan government.
In the meantime, local governments have made more drastic suggestions.
For example, Osaka Prefecture and Fukuoka City, selected as the National Strategic Special Zones, have proposed to decrease the corporate tax rate largely and more quickly in the Zones with certain restrictions. Especially Osaka has made this proposal based on its experience of reducing the local tax rates on certain companies (local corporate tax, fixed property tax) to zero both in the Prefecture and City.
In order to call back the outflowing industrial basements and to seriously consider attracting the world’s companies and human resources to the domestic land, we need to seriously consider drastic and speedy tax reductions even if such measures are to be applied in the special zones.