Japan Sees Radical Turnaround in Tax Plans

March 29, 2011 Taxation in Japan

Naoto Kan - World Economic Forum Annual Meeting 2011In an effort to shore funds for the reconstruction of the disaster struck Japan, the government is considering cancelling the planned cuts to the national corporate tax rates.

The government of Japan is indicating that it could drastically change its previously held plans for the economic development of the country. The economic strategies have been a long standing-block for Prime Minister Naoto Kan, and one of the central points of debate with the Liberal Democratic Party (LDP), the largest opposition party in Japan. Corporate tax cuts were a fundamental principal in the Prime Minister’s plans for the expansion of the country. Unfortunately for Japan, these strategies are no longer achievable in their original time frame, and must altered to suit new realities following the series of natural disasters which recently hit the country.

Only weeks ago the Prime Minister and the LDP were still searching for common ground over a planned 5 percent reduction to corporate tax rates. However, as the recent damages to the country are already estimated to exceed JPY 25 trillion (approx. USD 306 billion), the governing Democratic Party of Japan (DPJ) has effectively decided to put the planned cuts on an indefinite hold, with the deputy chairman of the tax committee of the DPJ Ikkou Nakatsuka saying, “…we can’t avoid raising taxes as the great earthquake may worsen an already dangerous fiscal situation.”

According to deputy chairman, the government’s new fiscal plans will include a cancellation of the planned corporate tax rate decrease and a 2 percent hike to the country’s sales tax, among other measures devoted to raising government revenues. All additionally raised revenues will be devoted to rebuilding infrastructures and facilities damaged by recent earthquakes, tsunamis and nuclear disasters. In a recent survey conducted by Japan’s Kyodo News network nearly 68 percent of citizens indicated that they would support tax rate hikes, if all the raised revenues are devoted to specified relief programs.

Photo by World Economic Forum