Japan ruling party aims to cut corporate tax to revive economy

TOKYO Thu Jun 20, 2013 5:59pm IST

Japan's Prime Minister Shinzo Abe (C) plays with children as he inspects a daycare center in Yokohama, south of Tokyo, in this photo distributed by Kyodo May 21, 2013. REUTERS/Kyodo

Japan's Prime Minister Shinzo Abe (C) plays with children as he inspects a daycare center in Yokohama, south of Tokyo, in this photo distributed by Kyodo May 21, 2013.

Credit: Reuters/Kyodo

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TOKYO (Reuters) - Prime Minister Shinzo Abe's ruling party vowed on Thursday to cut Japan's corporate tax rate to revitalise the world's third biggest economy, in hopes of winning an upper house poll in July and cementing its grip on power.

The ruling Liberal Democratic Party (LDP) made the pledge in an election campaign platform issued a week after investors were disappointed by Abe's pro-growth plan that left out cuts to Japan's corporate tax rate.

At about 36 percent, Japan's effective corporate tax rate is one of the highest among industrialised countries.

"To stimulate foreign direct investment and encourage Japanese firms to invest in Japan, we want to create a situation where we can reduce the effective tax rate," LDP policy chief Sanae Takaichi told reporters as she unveiled the policy platform ahead of the upper house election expected on July 21.

However, Takaichi suggested the corporate tax cuts would need time, reflecting some concern within the government that a wholesale cut could hit tax revenues and hurt public finances.

The government is working first to overhaul the tax system to spur capital spending, arguing that broader cuts to corporate tax should be tackled in the medium term, rather than now.

Takaichi stopped short of saying when, or by how much, the corporate tax could be reduced.

"Tax panels within the party and government will make a comprehensive decision, taking into account fiscal reforms and the effects of tax measures already implemented," she said.

The LDP reiterated the government's aim to halve the primary deficit, the budget excluding new bond sales and debt servicing, by March 2016, and returning to surplus by March 2021 before trimming the debt-to-GDP ratio in a stable way.

The ruling party also said it would consider measures to help people and industries cope with the impact of a weak yen, amid concerns about the higher cost of fuel and other imports.

The LDP and its small coalition ally are expected to win the July election on the back of Abe's expansionary policies aimed at pulling the economy out of years of stagnation, but must do this decisively to consolidate their hold on power.

(Reporting by Tetsushi Kajimoto; Editing by Clarence Fernandez)

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