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Japan to cut corporate tax rates to drive growth

LiveMint logoLiveMint 13-06-2014 AFP

Tokyo: Japan will slash one of the world’s highest corporate tax rates as part of a wider bid to shake up the economy and drive growth, officials and media reports said on Friday.

Economy minister Akira Amari told reporters in Tokyo that he had reached an agreement Thursday evening with the tax commission head of Prime Minister Shinzo Abe’s ruling Liberal Democratic Party.

Amari did not give details. But media reports said the deal would see corporate taxes, which vary across the country,cut to below 30% within several years, as Tokyo reduces the national rate to push down regional rates in turn.

Japan’s corporate taxes, including a rate of 35.6% in Tokyo, are the second-highest in the Organisation for Economic Cooperation and Development behind the US.

The conservative Abe is expected to speak to media about the changes later on Friday. Cutting business taxes is part of the final traunch of the Prime Minister’s “Abenomics” action plan, 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 world’s number three economy a shot in the arm and set off a stock market rally as firm’s profitability grew on the back of a sharply weaker yen.

But Abe’s much-touted,and politically more difficult,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 deregulation proposals across various sectors, including the health and agricultural fields, which are aimed at snipping Japan’s notorious red tape. Most are expected to be adopted later this month.

“We have received powerful proposals designed to boldly cut long-standing regulations,” Abe told the panel.

“From now on, I would like to show results,” he added.

Doubters say that despite his rhetoric, Abe will not be able to deliver a wider overhaul of the economy, including shaking up rigid labour markets and taking on a powerful agricultural sector that opposes free-trade deals.

The premier faces a delicate balance as ordinary Japanese struggle with lacklustre wage growth and rising prices for everyday goods, the result of Tokyo’s bid to stoke long-absent inflation and April’s consumption tax hike to 8% from 5%.

The rise was seen as crucial for bringing down one of the world’s heaviest debt burdens, but it also threatens to dampen spending power and further erode support for Abe’s turnaround plan.

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