Japanese Prime Minister Shinzo Abe and his ruling Liberal Democratic Party (LDP) have agreed to decrease Japan’s corporate tax rate starting fiscal 2015 in an effort to boost foreign investment in the country. Still part of Abe’s financial strategy to drag the country’s economy towards improvement, the government is now acknowledging foreign investors’ reluctance to invest in Japan because of its relatively high corporate tax rate.
Japan’s corporate tax rate currently stands at 35 percent – visibly higher than China’s 25 percent, South Korea’s 24 percent, and 17 percent in Singapore. Abe is banking on lowering the tax rate to stimulate foreign investments into Japan. Relying solely on the country’s export-driven businesses and industries is apparently not enough to sustain economic growth in the long term, and Abe is keen to look for other sources of economic boosts that Japan obviously needs at the moment. The imbalance of the country’s economy clearly shows with Japan’s debt more than 200 percent of its annual gross domestic product. Japan’s government debt is now over 1 quadrillion yen (approx. US$9.7 trillion). Abe’s financial easing strategies – popularly known as “Abenomics” – have shown improvement in one or two aspects of Japan’s perennially struggling economy, but needs more solid foundation for it to lead to sustainable growth.
Takeshi Noda, LDP’s Research Commission on the Tax System chairman, said that this agreement to increase the corporate hinges on the government’s ability to balance whatever income loss happens from the corporate tax cut to keep public finances afloat. Noda said that he was strongly suggesting that the government make up for the tax revenue that will be sure to decrease when the tax cut comes in effect, and openly verbalizing his reluctance to the idea in the first place. But Abe has promised efforts to balance the tenuous public finances, and the tax increase should be in place by 2015.
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