Japanese Prime Minister Shinzo Abe is considering a corporate tax cut as a way to offset the potential economic drag of a planned two-stage hike in the sales tax, the Nikkei economic daily reported on Tuesday, citing government sources.
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Abe has called for a study on lowering corporate tax, which at 38.01 percent is one of the highest in the industrial world, as a way of easing the burden on Japanese companies and attracting foreign investment, the Nikkei reported.
Lowering corporate tax could spark capital expenditure, an area that has lagged behind Japan's economic recovery.
However, supporters of fiscal discipline could oppose the tax cut. Some may also question such a move because around 70 percent of companies do not pay corporate tax due to accounting rules about how they book their losses.
Abe, who is wavering on whether to proceed with a planned increase in the sales tax, has instructed the government to hold meetings with business leaders and academics this month to assess the impact on the economy.
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Under a multi-party agreement last year, sales tax is to rise to 8 percent from 5 percent next April and to 10 percent in October 2015. But the government must certify that the economy is strong enough to withstand the pain of the fiscal tightening.
A decision on whether or not to raise sales tax is due in September or October.