After confusing discussions over where to find the funds needed to implement policy measures and to make up for tax cuts, the government Thursday approved the fiscal 2011 tax reform plan. The basic character of the plan is to increase the levy on the household sector, especially on rich individuals, while reducing it on the corporate sector.
Acceding to strong requests from business lobbies, the government decided to cut the effective rate of corporate tax by 5 percentage points from the current 40.69 percent. The cut will reduce the tax burden on firms by ¥1.5 trillion, although other tax burdens on them will increase by about ¥800 billion.
Prime Minister Naoto Kan hopes the corporate tax cut will stem the trend of moving production bases abroad and that firms will use the savings in taxes to increase domestic investment and employment. But there is no guarantee that this will happen. Major companies may simply increase their retained earnings.