By Junko Fujita
TOKYO (Reuters) - Japan's government should be free to scrap a planned cut in the corporate tax rate as it secures funds for rebuilding after this month's devastating earthquake and tsunami, the head of the country's biggest business lobby said.
Hiromasa Yonekura, chairman of the Japan Business Federation, also suggested companies may want to shift production to western Japan, which was not damaged by the quake and is not subject to the rolling power cuts that ensued.
Yonekura's comments will add weight to the argument that the government should skip a planned 5 percentage point cut in the corporate tax rate. Economics Minister Kaoru Yosano said last week that the cut should be reconsidered.
At 40 percent, the effective tax rate is higher than in most major economies and seen as a key deterrent to doing business in Japan. The plan was to lower it by 5 percentage points from the fiscal year starting in April.
"We could generate money for the earthquake recovery by issuing government bonds but then that would become a problem," said Yonekura, who is also chairman of Sumitomo Chemical
"We will also have to look at overall tax systems to generate the money."
(Reporting by Junko Fujita; Editing by Nathan Layne and Edmund Klamann)