Japan Passes Cut in Corporate Tax Rate

April 1, 2015

The Japanese parliament has approved a 3.29 percent cut in the corporate tax rate from an effective rate of about 35 percent, according to Bloomberg. Prime Minister Shinzo Abe has previously announced plans to lower the tax rate to under 30 percent over the next five years.

The corporate rate cut is part of a larger package that comprises the “Third Arrow” of Abenomics—the prime minister’s three part plan that includes (1) monetary easing, (2) fiscal spending, and now (3) structural reform. The package was introduced to provide a boost to Japan’s sluggish economy.

The prime minister previously stated that a goal of the Third Arrow is that "Japan's corporate tax rate will change into one that promotes growth" through increased investment and higher wages.

Earlier this March, Abe listed other benefits of a corporate tax cut: "We aim to stem the flow of Japanese companies leaving the country and promote foreign companies investing here, and as a result, the economy will grow steadily and tax revenue will increase.

Japan currently has a total statutory tax rate of 37 percent. In addition to being the second highest corporate tax rate in the industrialized world (behind only the United States), the Japanese tax rate is also one of the highest rates in the region. Both China and South Korea have corporate tax rates of about 25 percent, Singapore’s rate is 17 percent, and Hong Kong has a rate of 16.5 percent.

The tax cut will put the United States’s corporate tax rate of 39.1 percent even further behind other developed countries.

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