Japan seeks tax cuts for small firms - Nikkei

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TOKYO, Oct 23 (Reuters) - Japan's ruling coalition aims to introduce temporary tax cuts to support small firms affected by the global credit crisis, as part of an additional economic package, the Nikkei business daily reported on Thursday.

Prime Minister Taro Aso's cabinet will approve the additional package next week, with ruling lawmakers seeking 5 trillion yen ($51 billion) in new spending to implement the steps, it said.

Tokyo has already compiled a package with government spending of about 1.8 trillion yen to deal with a sharp economic downturn, and the additional steps are aimed at helping cushion the blow from the credit crisis.

The government is expected to use part of the reserves held in special accounts to fund the package, the Nikkei said, as it vows to avoid issuing new debt-covering bonds given Japan's public debt that amounts to 1-½ times gross domestic product.

As part of the tax breaks, the ruling bloc seeks to further cut a preferential tax rate of 22 percent imposed on small firms' annual income worth up to 8 million yen, the paper added.

To underpin tumbling stock markets, the government is considering extending tax breaks on dividends from listed stocks beyond 2009 when they are due to expire, the Nikkei said.

The ruling bloc also seeks to hammer out an income tax cut of 2 trillion yen as well as a scheme to recapitalise banks to help small firms that may be facing a credit crunch. (Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher)