It is often said that there is no such thing as a quick fix. Japan has suffered from years of deflation and weak economic growth, but it is clear that complex problems take time to resolve. Japan’s Prime Minister, Shinzo Abe, has set the priorities of his administration the ending of deflation and the restoration of economic growth. One measure already applied to this problem has been a gradual increase in sales tax, the first part of which came in in April. The move was designed to improve receipts to the Japanese exchequer to partially offset Japan’s major problems of public debt and spiralling social security costs in a nation with a dwindling birth rate and an aging population.
The government has announced its intention to cut corporation tax from its current level of 36%, one of the highest in the world, for large corporations based in the capital to below 30%. However, the reduction will take years to implement and is not planned to begin until 2015. Whilst dropping corporation tax will cut receipts to the exchequer, it is clearly hoped that a more competitive rate of corporation tax will encourage more firms to base themselves in Japan. However, the reduction requires that certain pieces of legislation will need to be enacted before it can come into effect. According to Kenji Yumoto, the vice chairman of the Japan Reseach Institute, enacting these changes will take time and it could take between 10 and 20 years to before the growth rate rises because of this initiative.
By way of comparison, corporation tax in the UK is 21%, marginally below the EU average value of 21.34%. Irish corporation tax is just 12.5% which many credited for the rise of the Celtic Tiger economy.