TOKYO Japan will consider cutting corporate taxes and ending a temporary tax hike earlier than scheduled, as a means to cushion the economy from an expected sales tax increase, a government source told Reuters on Thursday.
Prime Minister Shinzo Abe and Finance Minister Taro Aso - who has been publicly negative toward cutting the effective corporate tax rate - discussed the issue on Thursday morning, the source said.
Abe is expected to decide around October 1 to proceed with a planned increase in the consumption tax to 8 percent from 5 percent beginning next April, in a bid to rein in Japan's massive public debt. By law he must confirm that the economy is strong enough to withstand the blow.
The premier recently instructed his cabinet to craft measures to ease the economic drag of the consumption tax hike. Sources have said the package of measures will likely be worth about 5 trillion yen ($50.54 billion).
Among the steps now on the table, the source said on Thursday, are lowering the effective corporate tax rate, relatively high by international standards, and bringing forward the end of a special tax add-on, equal to 10 percent of a corporation's income tax payment, earmarked for reconstruction spending related to the March 2011 earthquake and tsunami.
The special tax is scheduled to expire in March 2015.
($1 = 98.9400 Japanese yen)
(Corrects paragraph 5 to show temporary tax was an additional 10 percent of tax payments, not a 10 percentage-point add-on)
(Reporting by Yoshifumi Takemoto; Writing by William Mallard; Editing by Edmund Klamann and Paul Tait)