Japan business lobby gives OK to scrap corp tax cut

Reuters News
Posted: Mar 28, 2011 6:47 AM
Japan business lobby gives OK to scrap corp tax cut

By Junko Fujita and James Topham

TOKYO (Reuters) - Japan's top business lobby gave the government the green light to scrap a planned cut in the corporate tax rate and urged firms to look at shifting production to western Japan as the nation grapples with its worst crisis since World War Two.

Hiromasa Yonekura, chairman of the Japan Business Federation, said the influential lobby would not fight the government if it decided to shelve a plan to lower the corporate tax rate, which at around 40 percent is among the highest in the industrialized world.

Economics Minister Kaoru Yosano suggested last week the government should reconsider the planned tax cut of 5 percentage points from April to prioritize spending on reconstruction and prevent the country's already massive debt pile from growing.

Cutting the corporate tax rate has been seen as key to boosting the competitiveness of Japanese firms.

"I don't mind if the government skips cutting the corporate tax rate," Yonekura, who is also chairman of Sumitomo Chemical, told a regular briefing in Tokyo. "Instead I want the government to move swiftly in its recovery efforts."

The government is scrambling to come up with funding for reconstruction after a 9.0-magnitude earthquake and tsunami stuck the northeast coast on March 11, causing an estimated $300 billion in damages and crippling a nuclear power plant.

The disaster knocked out about 20 percent of Tokyo Electric Power's operating thermal and nuclear power generation, prompting rolling blackouts in Tokyo and its neighboring prefectures which account for 40 percent of the country's gross domestic product.

Power outages have forced many companies to close plants or run at low capacity, sending ripples through supply chains.

Yonekura said companies may need to shift production to western Japan, which has not been affected by the quake or rolling blackouts, and suggested firms work together to conserve energy and get through the power crunch.

Possible steps include coordinating production times to reduce usage during peak hours and joint use of power generators among factories operating in the same region.

"We will have to cope with this in a combination of different ways," Yonekura said.

(Writing by Nathan Layne; Editing by Edmund Klamann and Edwina Gibbs)