Prime Minister Shinzo Abe on Wednesday indicated the possibility of lowering Japan's corporate tax rate to cushion the potential negative impact on the economy of a planned sales tax hike next year, government sources said.
During a meeting with Finance Minister Taro Aso at the prime minister's office, Abe instructed him to consider economic pump-priming steps with an eye on tax breaks aimed at stimulating private-sector investment and a cut in the effective corporate tax rate, the sources said.
But a conclusion was postponed as Aso, concurrently serving as deputy prime minister, expressed his reluctance to carry out a corporate tax reduction amid growing concern that the measure could significantly decrease tax revenues, they said.
Aso has said it is unreasonable to cut the corporate tax rate, even though the government is trying to lift the consumption tax rate to 8 percent from the current 5 percent next April.
Abe will make a judgment on whether to lower the corporate tax rate, after taking into account the possible effects of the tax measure on the economy and the opinions of economic and fiscal policy minister Akira Amari, a proponent of a corporate tax cut.
Aso and Amari are aiming to hammer out the outline of a stimulus package to prevent the scheduled sales tax increase from hurting the economy by the end of this week, as Abe is slated to visit Canada and the United States from Monday to Friday next week.
Cabinet members have already agreed to implement tax breaks to bolster capital spending. All eyes are now on whether they will reach a consensus on a corporate tax cut, observers said.
Amari said at a press conference on Tuesday that Abe's views will take precedence if the premier and the Finance Ministry were to lock horns on the matter of a corporate tax reduction.
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 on Oct. 1, his final decision on whether to go ahead with the first round of the planned two-stage increase in the consumption tax rate to 10 percent in October 2015, aimed at covering swelling social security costs amid the graying of Japan's population.
Abe, who has been trying to shake the nation's economy out of nearly two decades of deflation, is also set to unveil a stimulus package worth 5 trillion yen to avoid an economic slowdown following the tax hike, the sources said.