Japan Could Cut R&D Tax if Corporate Income Rate Cuts Are Introduced

The government is considering reducing tax breaks for corporate research and development if the corporate income tax rate is cut as sought by Prime Minister Shinzo Abe.

At a meeting Monday, the government’s Tax Commission, an advisory body to Abe, set out corporate tax reform proposals, including reducing the R&D tax credit, to offset the drop in revenue from a corporate income tax rate cut.

If the top corporate tax rate — consisting of national and local taxes — is cut from 35 percent at present to 25 percent, the same level as in China and South Korea, it would reduce the government’s overall tax revenue by about 5 trillion yen, according to the Finance Ministry.

The panel plans to also recommend scaling back the preferential tax treatment for smaller companies amid criticism it applies even to firms with huge profits.

Under the preferential treatment, the national corporate tax rate is set at 15 percent for small- and medium-sized firms, compared with 25.5 percent for large companies.

“We have won broad support from commission members,” Hiroko Ota, who chaired the day’s meeting, said of the reform proposals.

The Abe administration intends to include the tax reform proposals in economic stimulus plans to be compiled in June.

via SOURCE

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