Gov't to mull reducing tax exemption for dividends firms receive

The government plans to consider reducing the tax exemption for stock dividends companies receive, as a measure to fund the corporate income tax cut Prime Minister Shinzo Abe has promised to implement from fiscal 2015, officials said Friday.

The move, however, is likely to impose a heavier tax burden on private-sector firms including financial institutions that hold a large number of equities, possibly raising concern they might rush to sell stocks and that share prices could fall sharply.

The government and the ruling parties are expected to face difficulties in finalizing the plan toward the end of this year, when they are scheduled to map out their tax policies for the fiscal year starting next April.

The tax exemption system -- under which dividends firms receive are not seen as taxable incomes and exempt from corporate taxation -- is estimated to have reduced central government corporate tax revenues by around 1.4 trillion yen in fiscal 2012, according to the Finance Ministry.

Abe's administration has pledged to cut the country's 35 percent effective corporate tax rate to below 30 percent within a few years from fiscal 2015.

In order to secure financial resources to cover a possible decline in tax revenues, the government is also considering taking steps such as expanding corporate tax based on "external standards," such as the number of employees, capital and other ways of measuring the scale of operations.