Japan’s preparing for major tax reform

“The business community agreed to make its utmost efforts to raise wages next year, continuing on from (the year 2014’s) wage increases,” said Japanese Prime Minister Shinzo Abe on inauguration day, 6 days ago, of his third cabinet. As a result and pursuant to Abe’s economic policies within the “three arrows” – Abenomics is based upon fiscal stimulus, monetary easing and structural reforms – the Japanese government “will undertake sweeping reforms of regulations that hold back the vitality of the private sector.” One first step is under consideration already “that will transform Japan’s corporate tax into a form that is growth-oriented.”

Tax rate on corporate income – whose standard rate is 34.62 percent – should be cut by 2.51 percentage points in 2015 and then 0.78 additional percentage points the next year – a total of 3.29 percentage points – according to a proposal from Abe’s right-wing Liberal Democratic Party (LDP). The party’s tax commission stressed that the Abe government should “continue to steadily achieve a virtuous cycle of economic tax system that will encourage companies to increase profitability,” reads a communiqué. Furthermore, further tax exemption should promote the transfer of assets from the elderly to young people. This is one solution for Japan to “respond to development of aging and population decline,” wrote the LDP.