TAX NEWS - June 2010

Japan Corporate Tax Cut Can Spur Growth, Dai-Ichi Life Says

Lowering Japan's corporate tax rate could add 1.1 percent to gross domestic product in 10 years by spurring consumer and corporate investment, according to Dai- Ichi Life Research Institute.

The amount, which is equivalent to 5.9 trillion yen ($65 billion) of GDP, could be achieved if Japan's 41 percent corporate tax rate is slashed by 10 percentage points, Chie Umezaki, Tokyo-based economist at Dai-Ichi Life, wrote in a report published yesterday.

The ruling Democratic Party of Japan will today pledge in its election platform to reduce corporate levies to spur growth in the world's second-largest economy, the Nikkei newspaper reported today, without citing anyone. Tax cuts may compel Prime Minister Naoto Kan to pursue other revenue sources to make up for reduced collections from companies, Dai-Ichi Life said.

"Lowering corporate tax is unavoidable to ensure growth in the longer term," Umezaki wrote. "The government has to decide how to solve funding issues to allow it to cut corporate taxes as soon as possible."

Still, the growth generated won't be enough to make up for a decline in revenues obtained from companies, the report said. The government will only make up for 64 percent of the lost revenue over 10 years, Dai-Ichi Life said.

Kan has initiated debate on whether to raise the country's 5 percent sales tax.