"Lowering the corporate tax rate could lead to a virtuous cycle ending in corporate investment and higher wages. So you recoup that tax cut in other forms of growth because generally the economy benefits," said Vishnu Varathan, market economist at Mizuho Corporate Bank.
"It would incentivize higher investments which is one thing Abenomics is trying to unlock – the huge cash reserves that corporates have," he added. "It would also create more incentives to optimize profits and allow smaller firms to gain competitiveness given that within Asia, corporate tax in Japan is relatively high."
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Details of how much Tokyo will lower the corporate tax rate are expected to be unveiled in an economic package due later this month.
"The important thing is how much they will be able to reduce the tax rate by gaining other revenue from other sources," said Nishioka at RBS.
"It looks like they want to reduce the tax rate by as much as 10 percent, but if there is no other refinancing option this is impossible," she said, adding: "I think a reduction by 5 percent is reasonable for the time being."
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According to a report from Reuters, Abe has met resistance from his party's tax panel. It has called for assurances on how to fill the gap in tax revenue so that urgent fiscal reforms are not delayed.
"One thing is the natural recovery in the economy which is good for maintaining tax revenue but it's probably not enough," said Harumi Taguchi, principal economist at IHS Economics in Tokyo. "They may take away special tax treatments for some industries and also bring more companies into the tax pool."