Gov't mulls ending corporate tax surcharge earlier than planned

The government is considering ending a special corporate tax surcharge introduced to finance reconstruction work in areas hit by the March 2011 earthquake and tsunami one year earlier than planned at the end of this fiscal year in March, sources familiar with the matter said Thursday.

The de facto cut by about 2 percentage points in the effective corporate tax rate of about 38 percent for Tokyo-based firms is expected to be part of an economic stimulus package to be finalized by the end of this month to ease the potential impact of a sales tax hike next April, the sources said.

But there are concerns that an earlier end to the three-year 10 percent surcharge on corporate taxes could negatively affect reconstruction in the disaster areas.

Finance Minister Taro Aso and a tax panel of Prime Minister Shinzo Abe's ruling Liberal Democratic Party have also expressed fear that the corporate tax cut may hamper their efforts to restore the country's fiscal health, already the worst among industrialized economies.

A 1-point cut in the corporate tax rate is estimated to reduce government revenues by around 400 billion yen.

Without the surcharge, the effective corporate tax rate, consisting of national and local taxes, stood at 35.64 percent as of January for companies based in Tokyo, still higher than around the 30 percent in Germany, 25 percent in China and 17 percent in Singapore, according to data released by the Finance Ministry.

Abe is expected to give the final go-ahead on Oct. 1 to raising the 5 percent consumption tax rate to 8 percent in April as the first round of a planned two-stage increase to 10 percent in October 2015, aimed at covering swelling social security costs amid the graying of Japan's population.

The premier is also likely to unveil a 5 trillion yen stimulus package to avoid an economic slowdown following the tax hike, sources said earlier.