Cabinet members in charge of economic and fiscal policies remained at odds Tuesday over whether to cut Japan's corporate tax rate to soften the negative impact of a planned sales tax hike from 5 percent to 8 percent next April.
"Is it reasonable to cut the corporate tax rate while raising the consumption tax rate (by 3 percentage points)?" Finance Minister Taro Aso said at a press conference, adding, "From a commonsense standpoint, (a corporate tax cut) is difficult."
Aso also indicated that he believes such a tax reduction could further hurt Japan's fiscal health, already the worst among industrialized economies.
The corporate tax cut would be a significant hurdle to Japan achieving its fiscal rehabilitation goal, Aso suggested.
Meanwhile, economic and fiscal policy minister Akira Amari, a proponent of a corporate tax cut, said that Prime Minister Shinzo Abe's opinions will take precedence if he and the Finance Ministry were to lock horns on the tax issue.
"There is no room for discussion. Of course, the prime minister's views" will take priority, Amari, a close ally of Abe, said at a separate news conference.
Last week, Abe instructed Cabinet members including Aso and Amari to map out a stimulus package by the end of this month to ease the expected economic impact of the scheduled sales tax hike.
The instruction came as many business leaders have called on Abe's administration to cut corporate tax in an attempt to attract foreign investment and in turn shore up the broader economy.
The effective corporate tax rate, consisting of national and local taxes, stood at 35.64 percent as of January for companies based in Tokyo, higher than around 30 percent in Germany, 25 percent in China and 17 percent in Singapore, according to data released by the Finance Ministry.
Some experts say Japanese corporate tax is high by international standards, making some foreign companies reluctant to operate in the country.
Abe is likely to announce early next month, possibly on Oct. 1, his final decision on whether to go ahead with the first round of a planned two-stage increase in the consumption tax rate to 10 percent by the end of October 2015, aimed at covering swelling social security costs amid the graying of Japan's population.
The premier, who has been trying to shake the nation's economy out of nearly two decades of deflation, is also likely to unveil a stimulus package worth 5 trillion yen to avoid an economic slowdown following the tax hike, according to sources close to him.