- POSTED: 13 Jun 2014 15:54
- UPDATED: 13 Jun 2014 18:06
Tokyo said Friday it was slashing Japan's corporate tax rate, one of the world's highest, as the country's top central banker called for speedier reforms to unshackle an economy long mired in red tape.
TOKYO: Tokyo said Friday it was slashing Japan's corporate tax rate, one of the world's highest, as the country's top central banker called for speedier reforms to unshackle an economy long mired in red tape.
The cuts would bring the levy under 30 per cent within a few years, resulting in a tax rate ranging from 20 per cent to 29 per cent, depending on the jurisdiction.
Company taxes, including a rate of 35.6 per cent in Tokyo, are the second-highest in the Organisation for Economic Cooperation and Development (OECD) behind the United States, which some critics say has held back the world's number three economy.
Japan's levy is made up of both national and local taxes.
Tokyo is cutting the national rate to bring down firms' overall burden in a bid to stimulate hiring and corporate investment, as Prime Minister Shinzo Abe faces growing pressure to deregulate politically powerful sectors, including the agricultural industry.
"We're aiming to reduce the effective corporate tax rate... within a few years," Abe told reporters in Tokyo, adding that reductions would start from the fiscal year beginning in March 2015.
The conservative premier -- who swept to power in late 2012 on a pledge to rescue Japan from years of deflation -- said his government wanted to "send a clear message" with the tax cuts.
"Japan's corporate tax will become growth-oriented... to help boost jobs and improve people's livelihoods," he said.
Abe is facing calls to make good on the final tranche of his growth action plan, dubbed "Abenomics", which started in early 2013 with a huge public spending spree and an unprecedented monetary easing campaign by the Bank of Japan.
That gave the economy a shot in the arm and set off a stock market rally as firms' profitability grew on the back of a sharply weaker yen.
But there are growing fears that the nascent recovery may run into trouble without major reforms, after Tokyo hiked consumption taxes in April to bring down its massive national debt.
Abe's hand-picked central bank governor Haruhiko Kuroda -- a key architect behind Japan's war on years of falling prices and tepid growth -- repeated his call for action on Friday.
"The BoJ strongly expects that the government will implement the (reforms) policy, as it is important to improve labour supply and productivity," he told reporters, as the BoJ held fire on expanding its massive stimulus campaign after a two-day meeting.
Kuroda added that the BoJ would "support the government" by keeping up its bid to reach a 2.0 per cent inflation target by next year.
Abe is expected to release further details about his plan later Friday.
Some lawmakers had expressed concern at cutting corporate taxes when only about 30 per cent of Japanese firms pay anything -- due to weak finances.
Tokyo's finances are under increasing pressure as it struggles with the spiralling healthcare and social costs of a rapidly ageing society.
Abe has pushed through plans to start deregulating the energy sector and improve access to childcare for working parents.
But his much-touted first attempt at a package of structural reforms fell flat last summer, amid accusations they were too timid at taking on Japan's many vested interests.
On Friday, a government panel gave Abe more than 200 proposals for deregulating sectors including health and agriculture.
They appeared to back off from a planned overhaul of agricultural cooperatives in favour of letting the powerful farm lobby revamp itself.
Doubters say that Abe will not be able to deliver a full-scale overhaul of the economy, including shaking up rigid labour markets and taking on farmers who fiercely oppose free-trade deals.
The premier faces a delicate balance as ordinary citizens struggle with lacklustre wage growth and rising prices for everyday goods -- the result of Tokyo's bid to stoke long-absent inflation as well as April's consumption tax hike to 8.0 per cent from 5.0 per cent.