Japan economic plan pledges corporate tax reform but lacks details - draft

TOKYO Mon Jun 9, 2014 9:18am BST

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TOKYO (Reuters) - A draft economic plan being prepared by Japan's government commits it to "corporate tax reform" without specifying a target for a cut in the tax rate, according to a current version of the plan reviewed by Reuters.

The plan underscores the pressure on Prime Minister Shinzo Abe's government to rein in the world's heaviest government debt burden, which is more than twice the size of the economy.

The draft document, which is intended to sketch out the priorities of Japan's economic policies at a broad level, indicates that the issue of corporate tax reform is still "pending" and under discussion by officials.

"To stimulate private-sector investment and promote direct investment from abroad, we will press ahead with corporate tax reform," the draft plan reviewed by Reuters showed.

Japan's corporate tax rate is among the highest in the world at nearly 36 percent for large companies operating in Tokyo. Corporate leaders and investors have long called for a reduction to spur new investment and higher returns.

Private-sector members of the government's top economic and fiscal council have proposed cutting the rate to 25 percent eventually to put it in line with international standards.

But Japan's finance ministry and the ruling Liberal Democratic Party's tax panel are wary that a cut would dent the country's tax receipts, and argue that alternative revenue sources need be secured first.

Each percentage point of tax cuts would reduce government revenue by about 470 billion yen (£2.74 billion) a year, according to the finance ministry.

The four-page draft economic plan renews a pledge to consider a hike in the national sales tax to 10 percent within 2014 and commits to convening a top economic advisory panel twice a year to review Japan's progress on fiscal consolidation.

Abe is expected to decide by the end of 2014 whether to raise the national sales tax to 10 percent in October 2015.

The politically contentious sales tax hike is seen as a first step towards meeting Japan's aim of halving its budget deficit - excluding new bond sales and debt servicing - in the next fiscal year to March 2016 and achieving a surplus in the fiscal year that ends in March 2021.

Abe has pledged a revival plan aimed at lifting the potential output of the world’s third-largest economy. That will include both a detailed list of proposals for specific reforms and a broad set of goals for economic and fiscal policy.

Taken together, they represent Abe’s “third arrow,” a reform update that follows an aggressive program of quantitative easing by the Bank of Japan and an earlier round of fiscal stimulus.

Earlier this month, a draft of the more-detailed, 60-page reform proposals prepared by government ministries and reviewed by Reuters included pledges to overhaul corporate governance and spur investment in technology such as hydrogen fueling stations and robotics.

Abe is set to announce the full set of economic reform proposals later this month.

(Reporting by Tetsushi Kajimoto; Writing by Kevin Krolicki; Editing by Chris Gallagher & Kim Coghill)

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