Japan to cut corporate tax to stimulate economy

Japan's government announced yesterday that it would cut the country's hefty corporate-tax rate by five percentage points, in a bid to stimulate the economy and help Japanese businesses stay competitive.

The step is aimed at promoting investment, employment and salary increases at home so that Japan can exit deflation, Prime Minister Naoto Kan said.

"I decided to take a bold step," he told reporters.

Kan acknowledged more Japanese companies were moving abroad where corporate taxes are lower, causing job losses in Japan, Kyodo News agency reported. "That is not a plus for the Japanese economy," he said, according to Kyodo.

Kan said the decision was made during a meeting he had with Finance Minister Yoshihiko Noda and National Policy Minister Koichiro Gemba. The prime minister did not elaborate on how the government would make up for the shortfall of revenue from the tax cut.

The step comes just weeks after lawmakers passed Kan's US$61-billion stimulus package, which aims to create jobs and inject life into the economy.

The embattled leader has struggled to keep the focus on the economy in a venomous political environment. His approval ratings have declined in recent voter polls, with dissatisfaction over his government's handling of diplomatic spats with China and Russia.

A series of gaffes by members of his Cabinet, including a justice minister who was forced to step down, have added to disappointment.

Japan's corporate-tax rate currently stands at about 40 per cent, compared to about 30 percent in the US and Britain, according to the economy, trade and industry ministry.

The ministry and Japanese business lobbies have called for corporate tax cuts, saying the current level poses a big burden on Japanese companies and makes them less competitive globally.

- AP