JAPAN’S ruling coalition has approved a tax reform plan that will cut corporate taxes from April and pledges further reductions in coming years in a bid by Prime Minister Shinzo Abe to bolster economic growth.

    The plan approved by Abe’s Liberal Democratic Party (LDP) and its coalition partner Komeito on Tuesday would cut the overall effective corporate tax rate by 2.51 percentage points to 32.1 percent from April and then to 31.3 percent the following year.

    Abe pledged in June to lower the corporate tax rate to below 30 percent over the coming years to help pull Japan out of nearly two decades of deflation.

    Takeshi Noda, chairman of the LDP’s tax panel, estimated that the corporate tax cut would amount to about 400 billion yen (US$3.32 billion) over the next two fiscal years.

    Abe hopes the tax cuts will encourage companies to raise wages, which would spur consumer spending, and to invest some of the US$1.9 trillion in cash held by companies outside the financial sector.

    Japan’s top effective corporate tax rate is 34.6 percent, among the highest in the major economies. The average corporate tax rate stands around 25 percent among OECD economies.

    But after a decade of slow growth only about 30 percent of companies actually pay taxes. The rest are either unprofitable or have been able to apply credits from prior losses.

    In a change aimed to broaden the tax base, established companies would only be able to apply losses to write off half of reported income from 2017.

    The ruling coalition estimates it will be budget neutral in the third year as steps such as broadening the tax base will help cover shortfalls caused by the tax cut.

    “The focus is whether companies will pass funds arising from the tax cuts to capital spending and wage increases, which will lead to economic recovery,” said Satoshi Osanai, economist at Daiwa Institute of Research.(SD-Agencies)