Japan Could Cut R&D Tax if Corporate Income Rate Cuts Are Introduced

The government is considering reducing tax breaks for corporate research and development if the corporate income tax rate is cut as sought by Prime Minister Shinzo Abe.

At a meeting Monday, the government’s Tax Commission, an advisory body to Abe, set out corporate tax reform proposals, including reducing the R&D tax credit, to offset the drop in revenue from a corporate income tax rate cut.

If the top corporate tax rate — consisting of national and local taxes — is cut from 35 percent at present to 25 percent, the same level as in China and South Korea, it would reduce the government’s overall tax revenue by about 5 trillion yen, according to the Finance Ministry.

The panel plans to also recommend scaling back the preferential tax treatment for smaller companies amid criticism it applies even to firms with huge profits.

Under the preferential treatment, the national corporate tax rate is set at 15 percent for small- and medium-sized firms, compared with 25.5 percent for large companies.

“We have won broad support from commission members,” Hiroko Ota, who chaired the day’s meeting, said of the reform proposals.

The Abe administration intends to include the tax reform proposals in economic stimulus plans to be compiled in June.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza