Japan's ruling coalition agreed on Tuesday to cut the corporate tax rate, one of the world's highest, as a key part of Prime Minister Shinzo Abe's bid to stoke growth. Abe's Liberal Democratic Party (LDP) and junior coalition partner Komeito adopted the new rate for the fiscal year starting in April. It will get official approval from the government in January. The move would see Japan's top corporate tax cut from 34.62 percent to 31.33 percent over the next two years, officials and media reports said.
The current rate is lower than in the United States, but higher than most other major economies. Abe has vowed to cut the levy to under 30 percent, resulting in a tax rate ranging from 20 percent to 29 percent depending on geographic location, as his attempt to kick-start the world's number three economy falters.
"We have to continue our efforts so that the effective tax rate can be cut further," Takeshi Noda, the LDP's tax policy chief, told reporters on Tuesday. The premier's two-year battle to reverse years of deflation and tepid growth appeared to be bearing fruit. But an April sales tax increase - aimed at paying down Japan's enormous national debt - slammed the brakes on growth and pushed the economy into recession during the third quarter.
Abe is facing calls to make good on the final tranche of his revival plan, dubbed "Abenomics", which started in early 2013 with a huge government 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 exporters' profitability grew on the back of a sharply weaker yen. But Tokyo is facing increasing calls to push on with major reforms, including loosening the highly regulated labour market and opening the protected agricultural sector to more outside competition.
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