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Gov't to give smaller firms tax breaks if they invest in plants, equipment

The government is set to create a system to cut the rate of the fixed property tax levied on small- and medium-sized companies' production machinery if they make investments in factories and equipment, government sources said.

    The system, which will be introduced in fiscal 2016, is aimed at encouraging smaller businesses, most of which are in the red, to invest in plants and equipment by lessening the tax burden on these companies for three years.

    Moreover, the effective rate of the corporate tax will be lowered from the current 32.11 percent to 29.74 percent in fiscal 2018.

    A broad agreement on these tax cut plans was reached at a meeting of leading members of the ruling Liberal Democratic Party's (LDP) Research Commission on the Tax System on Dec. 6. These decisions will be incorporated in the outline of the tax system reform for fiscal 2016.

    The government of Prime Minister Shinzo Abe is poised to boost the economy by encouraging companies to invest in factories and equipment and support businesses in many other ways.

    The tax system reform outline has almost been finalized except for a reduced consumption tax rate on daily necessities and a new automobile tax to be introduced when the consumption tax rate is raised from the current 8 percent to 10 percent in April 2017.

    The government earlier decided to lower the effective corporate tax rate to 29.97 percent in fiscal 2016. However, since companies in the red are not required to pay corporate tax, lowering the effective tax rate will not lessen the tax burden on such businesses. Therefore, the government will reduce the rate of the fixed property tax on new production machines that small- and medium-sized companies will introduce, since a majority of such businesses are in the red.

    Economy, Trade and Industry Minister Akira Amari said the property tax cut will encourage smaller businesses to make investments in plants and equipment. "If the fixed property tax that companies pay regardless of whether they are profitable is reduced, money-losing businesses will also benefit from investing in plants and equipment," he told reporters on Dec. 6.

    The LDP is also apparently aiming to garner support from the operators of small- and medium-sized firms through these measures as a House of Councillors election is to be held in the summer of 2016.

    The effective corporate tax rate will remain at 29.97 percent in fiscal 2017, when the consumption tax rate is increased to 10 percent. It will then be cut to 29.74 percent in fiscal 2018.

    The government is expected to secure enough financial resources through the abolition of tax cuts for businesses that introduce cutting-edge plants and equipment to cover the corporate tax reductions.

    The new automobile tax will replace the automobile acquisition tax that will be abolished at the time of the consumption tax raise. The rates of the new car tax will be set in four levels from 0 to 3 percent depending on the fuel efficiency of each model, though the details of the system are still being worked out.

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