Japan needs to overhaul tax system: minister

TOKYO (Reuters) - Japan needs to completely overhaul its tax system as part of the world's second-largest economy's push to revitalize its financial markets, the country's financial services minister said on Thursday.

Yoshimi Watanabe, who has been charged with boosting Tokyo's competitiveness as a global financial centre, also told the Reuters Investment Summit that Japan -- recently the target of overseas activist funds -- needs to be open to all investors, regardless of nationality.

Tokyo has recently rejigged the tax code so that offshore funds, which already pay tax in their home country, will no longer be taxed a second time in Japan.

Yet corporate tax, one of the highest among major economies and seen as discouraging to foreign investors, remains unchanged.

"The tax system has to be totally reformed," Watanabe said. "I have instructed my staff to study what should be done with taxation in order to improve Japan's financial market."

Japan's corporate tax rate of around 40 percent is higher than in other major economies -- it is around 30 percent in Britain, Germany and France for instance -- making it less attractive for foreign investment.

A government advisory panel in May called on the government to cut corporate taxes and implement more transparent rules for mergers and acquisitions.

Saddled with sluggish growth and a rapidly shrinking population, Japan is desperate for foreign investment and is especially keen to woo hedge funds, which managed an estimated $1.8 trillion globally at the end of March, according to Lipper Tass.

Watanabe also said Japan, which is increasingly targeted by foreign activist funds, must not discriminate against any investors.

"Japan must be open, with a welcoming attitude, to all investors, both foreign and domestic."

Western activist funds such as The Children's Investment Funds (TCI) and Steel Partners are pushing hard for higher returns and greater shareholder rights in Japan, although many of their efforts have so far been defeated.

Their actions have been criticized by some Japanese executives and media outlets as driven solely by greed.

The head of Japan's regulatory Financial Services Agency, Takafumi Sato, told the Reuters Japan Investment Summit on Tuesday that funds which press for change can play a positive role by helping to improve corporate governance.

(Additional reporting by Emi Emoto; Editing by David Holmes)