The main objectives of the bill are to sustain the government’s efforts to reenergize the Japanese economy, encourage investment by foreign entities and offer various tax cut measures for companies to boost the economy says Nair & Co. International Tax Consulting Team.
The most significant changes include:
* Special Reconstruction Surtax – 10% surtax levied on corporate tax (i.e. 2.55%) is to be abolished one year early i.e. from tax years commencing April 1, 2014. This surtax was introduced under the Tax Reform 2012 in order to generate funds to reconstruct areas which were damaged during the March 2011 earthquake and tsunami.
* Consumption Tax – The government has decided to increase the consumption tax rate to 8% (currently 5%) effective 1 April 2014.
* Effective Corporate Tax Rate – After the repeal of the special reconstruction surtax, the effective corporate tax rate will be reduced to 35.64% (currently 38.01%) effective 1 April 2014.
* National Corporate Tax Rate – This will remain unchanged i.e. 25.5%.
* Local Inhabitant Tax Rate – This will remain unchanged i.e. 5.2785% (20.7% on national corporate tax - 25.5%).
* Local Enterprise Tax Rate – This will remain unchanged i.e. 7.552% which also includes the special local corporation tax.
Companies having operations in Japan or those planning to set base in the country may find the above proposals beneficial due to reduction in the effective corporate tax rate. Such companies may also consider monitoring further progress on the above proposals.
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