The ruling coalition parties, LDP and Komeito, has reached an agreement on lowering the effective corporate tax rate to 29.97% in fiscal year 2016, reports Nikkei (J) on December 3^rd.  The new rate represents a drop of more than 2% from the current 32.11% rate, and would bring the country on par with countries such as Germany. The Abe-government has speeded up the reduction to increase the international competitiveness of Japanese enterprises and stimulate economic activity. However, while undercutting the US tax rate of 40.75% by a large margin, the rate is still substantial higher than neighbouring South-Korea or the UK. 

Footing the bill for the measure are loss-making companies.  Taxes based upon the assessment of the size of businesses (gaikei hyoujun kazei) independent of actual earnings are broadened in their scope to make up for lost tax revenue.  Loss-making companies thus far paid relatively little taxes, which was seen acting as a constraint on companies taking measures to restructure their loss-making activities. In this light, the government is also planning to limit the carryover and refund carry back of losses taxation scheme.

Faced with stiff opposition from the business community, SMEs capitalized at less than ¥100 mln, will continue to receive fiscal relief in the coming year.  A proposal where SMEs, facing an increase tax bill in 2016, will get a 75% relief on the higher tax amount is regarded as promising at the moment.

Source: Nikkei Online, 法人税率、16年度29.97％で決着　国際競争後押し (December 3, 2015)