The Japanese Government submitted legislation to Parliament on February 17 2015, including the planned corporate tax cuts. As the Prime Minister previously had previously promised growth strategies, the Government plans to reduce the country’s corporate income tax rate from its current effective rate of more than 35% to an effective rate below 30% over the next few years, so as to lower it to a more internationally competitive level.
The first steps in that plan will involve a cut to the headline corporate tax rate by 2.51% to 32.11% in the fiscal year beginning in April this year and then to 31.33% in 2016.
The legislation also includes provisions to recoup much of the lost revenue from the rate reductions by broadening the corporate tax base. With only around 30% of Japan’s companies presently paying corporate tax because of previous losses, the proposals include a reduction in the amount of previous losses that can be set off against declared business income.
At the same time, the legislation will modify the consumption tax law so that the programmed sales tax hike from 8% to 10% will be postponed by 18 months to April 2017.
Other measures have also been added to the tax reform package to encourage accumulated wealth to be passed down to younger generations.
