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What is ‘corporate tax'?

In response to business circles' demands, Japanese political parties are calling for a reduction in the corporate tax. The Ministry of Economy, Trade and Industry also calls for a five-percent corporate tax cut in the "Industrial Structure Vision 2010" published on June 1. What is the corporate tax in the first place?

Levied purely on profits

Okada Toshiaki, former chair of the National Tax Agency Workers' Union, said, "Roughly speaking, corporate tax is imposed on corporate profits. Their profits are calculated by deducting expenditures from sales."

The expenditures, including investments in plant and equipment, sales and administrative costs, and employees' wages, are all deducted from the taxable amount. After paying the corporate tax, the rest of the profit will be mainly divided into internal reserves and dividends.

"They say that a corporate tax hike will be passed on to employees in reduced wages or will place severe strain on corporate competitiveness. But such arguments are all humbug," said Okada.

Tax revenues go down by cutting corporate tax

The national government's corporate tax revenue in the FY 2010 is expected to be 5.953 trillion yen. Companies are also required to pay a local corporate tax and a corporate residents' tax to their respective local governments. The total revenue from these three corporate taxes in this fiscal year will be 10.959 trillion yen, which is 19 trillion-yen less than in 1989 when the amount hit a record high.

The current corporate tax rate is 30 percent (about 40 percent if including the two other corporate taxes).

More internal reserves

Why are business circles and major companies persistently calling for their tax requirements to be lowered? According to Tomiyama Yasuichi, secretary general of the association to review unfair taxation systems and former National Tax Agency worker, it is because "the rise in corporate tax will lead to reductions in their internal reserves and in dividends."

In other words, a corporate tax reduction will create more internal reserves to employers, which are actually used for foreign investment, as well as more benefits to their major shareholders.

"Trying to deal with the financial crisis while cutting the corporate tax, which is a major source of tax revenues, is nonsencical," said Tomiyama, who went on to say, "Although the government refers to the international trend toward corporate tax reductions, the global competition to lower corporate taxes must be halted and reason must prevail."

- Akahata, June 17, 2010

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