Should Japan reduce corporate tax rate ?

May 12, 2014

[Photo] Meeting with Mr.Holznagel, President of The German Taxpayers Federation (2013/8/22)

[Photo] Meeting with Mr.Holznagel, President of The German Taxpayers Federation (2013/8/22)

As you know, "Abenomics" consists of 3 points; the first is a bold monetary easing policy, the second is a flexible fiscal policy and the third is a strategy for economic growth, such as deregulation and so on. To date, the first and the second policies have yielded good outcomes; therefore, whether "Abenomics" can succeed will depend on its third policy, a strategy for economic growth.

On the other hand, the Abe Cabinet has implemented a consumption tax hike from 5% to 8% last April in order to reduce the issuance of public bonds that stands at 7 trillion dollars, and to secure social security financial resources.

To decrease the burden of the consumption tax hike, the Abe Cabinet and our coalition party have urged the Japan Business Federation to raise employee wages, which has resulted in many enterprises beginning to do so.

Hereafter, the most controversial policy will be to reduce the corporate tax. Prime Minister Shinzo Abe is eager to lower the corporate tax rate as a growth strategy that will lead to expanding fiscal deficit, without taking any other measures.

In Japan, the substantial rate of corporate tax, including local tax is about 35%, which is relatively higher than most emerging and developed countries.

I heard that in Germany the substantial corporate tax rate is about 29%. If Japan lowers corporate tax rate to the level of Germany, we should prepare the alternative financial resources of 3 trillion yen. We have to check whether lower corporate tax rates really strengthen enterprises and encourage economic growth.

By Yuzuru Takeuchi