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Japan's business says corporate tax cut not enough
By Isabel Reynolds |
December 15, 2010, Wednesday
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Print Edition
Print Edition
JAPAN'S plan to boost its ailing economy by cutting corporate taxes got a guarded welcome from business yesterday, but is unlikely to help restore the fortunes of unpopular Prime Minister Naoto Kan.
Kan gave orders on Monday for a 5 percentage point cut in the tax rate from the year starting next April, despite the country's ballooning debt, saying it would enable businesses to increase domestic investment, boost jobs and raise salaries.
But executives, especially in the auto and electronics industries, say their firms will still lose out to South Korean competitors unless the government gives tax breaks for research and capital investment, helps combat the strong yen and makes progress on free trade deals.
Political analysts said the tax cut would neither induce businesses to back Kan's ruling Democratic Party of Japan nor help raise voter support, which hit a fresh low of 21 percent in a media poll published yesterday.
"Corporate taxes in Japan are high compared with countries around the world, so a reduction of the tax rate is a good thing," Mitsubishi Motors Corp President Osamu Masuko said.
"But in order to boost jobs and capital outlays on facilities, management needs to be able to have a bright outlook for the future, and for that a reduction in the corporate tax rate is not enough. The yen is still very strong, and for companies like ours that rely heavily on exports, it's a tough situation."
Cutting the tax rate to 35 percent from 40 percent would still leave it higher than 28 percent in Britain, 29.4 percent in Germany and 24.2 percent in South Korea, which is gaining overseas market share in cars and electronics at Japan's expense.
Many Japanese companies are more inclined to invest abroad as they try to reduce reliance on the stagnating home market, doing little to reduce the 5.1 percent jobless rate.
In the latest example, Nissan said last week it would transfer production of its Rogue light truck out of Japan in 2013, in a bid to reduce exposure to the high yen.
A Reuters survey of 217 firms in November and December found 63 percent wouldn't change domestic hiring or investment plans due to a 5 percentage point tax cut because emerging market demand is more important than the tax rate.
Kan gave orders on Monday for a 5 percentage point cut in the tax rate from the year starting next April, despite the country's ballooning debt, saying it would enable businesses to increase domestic investment, boost jobs and raise salaries.
But executives, especially in the auto and electronics industries, say their firms will still lose out to South Korean competitors unless the government gives tax breaks for research and capital investment, helps combat the strong yen and makes progress on free trade deals.
Political analysts said the tax cut would neither induce businesses to back Kan's ruling Democratic Party of Japan nor help raise voter support, which hit a fresh low of 21 percent in a media poll published yesterday.
"Corporate taxes in Japan are high compared with countries around the world, so a reduction of the tax rate is a good thing," Mitsubishi Motors Corp President Osamu Masuko said.
"But in order to boost jobs and capital outlays on facilities, management needs to be able to have a bright outlook for the future, and for that a reduction in the corporate tax rate is not enough. The yen is still very strong, and for companies like ours that rely heavily on exports, it's a tough situation."
Cutting the tax rate to 35 percent from 40 percent would still leave it higher than 28 percent in Britain, 29.4 percent in Germany and 24.2 percent in South Korea, which is gaining overseas market share in cars and electronics at Japan's expense.
Many Japanese companies are more inclined to invest abroad as they try to reduce reliance on the stagnating home market, doing little to reduce the 5.1 percent jobless rate.
In the latest example, Nissan said last week it would transfer production of its Rogue light truck out of Japan in 2013, in a bid to reduce exposure to the high yen.
A Reuters survey of 217 firms in November and December found 63 percent wouldn't change domestic hiring or investment plans due to a 5 percentage point tax cut because emerging market demand is more important than the tax rate.
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