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Analysis: Ruling parties’ proposed tax reforms dominated by tax cuts

  • 2015-12-11 15:00:00
  • , Asahi
  • Translation

(Asahi: December 11, 2015 – p. 2)

 

 By Naoatsu Aoyama

 

 The outline of FY2016 tax reforms agreed upon by the tax commissions of the Liberal Democratic Party and Komeito is dominated by tax cuts, including a reduction in the effective corporate tax rate and a new auto tax system. This reflects the intent to give another kick-start to Abenomics and a strong focus on the next House of Councillors election.

 

 The corporate tax cut was included as a result of a demand from the Prime Minister’s Official Residence (Kantei) to implement the tax reduction ahead of schedule. This will not benefit small and mid-size businesses suffering losses, so a policy to reduce property tax by half for machinery they purchase was introduced.

 

 The “fuel efficiency discount” in the new auto tax replacing the purchase tax is also a de facto tax cut aimed at minimizing the plunge in auto sales after the consumption tax rate is increased.

 

 The reason for these tax cuts is anxiety about the failure of capital investment and consumption to pick up as projected. The government is demonstrating its “determination” through these tax breaks to put pressure on companies to increase capital spending and wages.

 

 Yet, corporate tax cuts of approximately 5% in the three years since the Abe administration was inaugurated have not produced any tangible effects and the auto tax is not expected to revitalize the shrinking domestic market.

 

 While fiscal restructuring is an urgent issue for the debt-ridden government, such a notion seems to be absent from these tax reform proposals consisting mostly of tax breaks. (Slightly abridged)

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