Japan Press Weekly

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2014 July 16 - 22 [ECONOMY]

More corporate tax cuts increase corporate internal reserves

Data released by Teikoku Databank on July 14 shows that 20.5% of 10,571 surveyed companies responded that the most probable usage for the gains from the reduction in the corporate tax rate would be to further accumulate internal reserves.

The survey reveals that many companies would utilize the reduced portion for their coffers, not contributing to growth led by consumer spending.

The “for personnel” in the form of salary increases or bonuses came second at 17.3%, followed by “for repayment of debt” (16.3%), “for capital investment” (14.9%), and “for an increase in the number of personnel” (14%).

The Abe government plans to reduce the effective corporate tax rate from the present 35% to a 20%-level in the next few years under the pretext of enhancing the competitiveness of Japanese firms. Prime Minister Abe Shinzo explains that this is a growth-oriented reform in the corporate tax structure.

Of the companies which pointed to the expansion of capital investment, 58.1% responded that they would expand only within the range of 50 million yen. This indicates that investment would be extremely limited.

Statistics on machinery orders released by the Cabinet Office on July 10 shows that private-sector demand in May fell by 19.5% from a year earlier, the largest-ever drop.