Japanese tax received coolly

City A.M. Reporter
Japan’s plan to boost its ailing economy by cutting corporate taxes got a guarded welcome from business yesterday, but is unlikely to help restore the fortunes of unpopular Prime Minister Naoto Kan.

Kan gave orders on Monday for a five percentage point cut in the tax rate from the year starting next April, despite the country’s ballooning debt, saying it would enable businesses to increase domestic investment, boost jobs and raise salaries.

But executives, especially in the car and electronics industries, say their firms will still lose out to South Korean competitors unless the government provides tax breaks for research and capital investment, helps combat the strong yen and makes progress on free trade deals.

Political analysts said the tax cut would neither induce businesses to back Kan’s ruling Democratic Party of Japan, nor help raise voter support, which hit a fresh low of 21 per cent in a media poll published yesterday.

“Corporate taxes in Japan are high compared with countries around the world, so a reduction of the tax rate is a good thing,” Mitsubishi Motors president Osamu Masuko said yesterday.

He added: “But in order to boost jobs and capital outlays on facilities, management needs to be able to have a bright outlook for the future, and for that a reduction in the corporate tax rate is not enough. The yen is still very strong, and for companies like ours that rely heavily on exports, it’s a tough situation.”

Cutting the tax rate to 35 per cent from 40 per cent would still leave it higher than the 28 per cent corporate tax rate in Britain, 29.4 per cent in Germany and 24.2 per cent in South Korea, which is gaining overseas market share in cars and electronics at Japan’s expense.

Many Japanese companies are more inclined to invest abroad as they try to reduce reliance on the stagnating home market, doing little to reduce the 5.1 per cent jobless rate.