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Profitable companies to benefit more from corporate tax reforms

  • 2015-01-08 15:00:00
  • , Mainichi
  • Translation

(Mainichi: January 8, 2015 – p. 4)


By Ai Yokota


Corporate tax reforms, a key component of the ruling parties’ outline of tax reforms for FY2015, will result in the reduction of the effective corporate tax rate (standard rate is 34.62%; 35.64% in Tokyo) but stricter taxation on loss-making companies. While profitable mid-ranking and big companies enjoying a business boom stand to benefit more from the tax cut, taxation on small and mid-size companies remains practically unchanged, so the effect on them will be limited.


This year’s tax reforms are notable for coming in a package consisting also of policies to increase revenue income to cover the shortfall from the tax cut. Impact on businesses will depend on their size and profitability. A typical case is the local corporate tax paid to local governments.


This tax consists of taxation on profits made by businesses and a size-based tax depending on employees’ wages, cost of office lease, and such other factors defining business size, currently imposed on some 23,000 companies capitalized over 100 million yen. Even loss-making companies are charged this size-based tax and the plan is to double this tax from the present level in FY2015 and FY2016. Extra revenues from this will be used to cover lower taxes on profits.


The Finance Ministry’s estimates based on taxes paid for FY2013 show that of the major companies (capitalized at 1 billion yen or more), 1,583 loss-making companies will see their taxes increased by an average of 55 million yen. On the other hand, 4,285 profitable companies will enjoy an average tax cut of 19 million yen. This is because while their size-based tax will increase, tax on profits will be reduced, resulting in a net tax cut.


For mid-ranking companies (capitalized at 100 million – 1 billion yen), 4,418 loss-making companies will have to pay an average of 3 million yen more in taxes. However, a remedial measure will be taken for two years, until FY2016 to reduce the tax increase by half for companies meeting certain conditions, so there will be many cases where the actual tax increase might be less. Meanwhile, 12,592 profitable mid-ranking companies will see their tax bills reduced by an average of 2 million yen.


Profitable companies will also benefit more from the corporate tax cut in terms of the national corporate tax. Those taxed at 25.5% at present will be taxed only 23.9% from FY2015. However, the loss carryover deduction system for reducing the tax burden, calculated by deducting past losses from current profits, will be scaled back. As a result, some companies enjoying tax cuts based on their past losses may face a tax increase.


Meanwhile, the higher size-based tax will not apply to about 2.6 million small businesses (capitalized below 100 million yen), which make up 99% of registered corporations in the country. Corporate tax rate for income exceeding 8 million yen will be reduced from 25.5% to 23.9%, while the reduced tax rate of 15% for income below 8 million yen is being extended. However, many small and mid-size companies do not actually pay corporate tax because they are not making any profits, so the corporate tax reforms will affect only a limited number of them. (Slightly abridged)

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