Tax to be cut by up to 20% for firms increasing wages

December 12, 2017

Tokyo- Japan's government and ruling bloc are in the final stages of talks on a plan to cut corporate tax by up to 20 percent for companies that increase wages, as part of measures to support their efforts for boosting productivity, informed sources said Monday.

The plan will cover large companies that increase pay by 3 percent or more year on year per worker and small firms offering hikes of at least 1.5 percent, the sources said.

This will be included in the Liberal Democratic Party-led ruling camp's fiscal 2018 tax reform package, which will be compiled on Thursday, as a temporary step for three years to help spur corporate investment and bring about a revolution in productivity, the sources said.

At present, large companies carrying out wage hikes have their corporate tax payments cut by up to 10 percent.

By expanding the system, the government and the ruling bloc will allow large firms offering wage hikes of at least 3 percent and making investments on facilities at home equivalent to 90 percent or more of depreciation costs to deduct 15 percent of the total amounts of wage hikes from their corporate tax payments, the sources said.

For companies that expand investments in human resources by 20 percent or more compared with the average levels in the past two years, 20 percent of the wage increase amounts will be deducted, according to the sources.

For small companies, 15 percent of the total pay hike amounts will be deducted if wages are raised by 1.5 percent or more. The proportion of deductions will be 25 percent if wages are raised by 2.5 percent or more and human resources investments are increased by 10 perenct or more, the sources said.

The government and the ruling coalition also plan to set up a new system in which companies that invest 50 million yen or more in software and other information-related products and systems to improve productivity can deduct 3 percent of the investment amounts from their corporate taxes. The rate of deductions will be 5 percent for firms also carrying out pay hikes of 3 percent or more, according to the sources.

On Friday, Prime Minister Shinzo Abe, also president of the LDP, expressed his intention to drastically cut the corporate tax for companies active in wage hikes and innovative investments. Jiji Press