Japan’s tax strategy ‘poses more harm than good to most steelmakers’

The Japanese government’s latest announcement that it would raise the consumption tax rate but cut corporate taxes will be more harmful than beneficial to many steelmakers, one official argues.

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“There has been a lot of talk for many years in Japan about the need to lower the corporate tax rate to bring them in line with international levels.

“But the government’s measures announced yesterday, while I suppose is positive, will not really benefit most steelmakers, especially the smaller ones and stainless steel producers because they are not making any money to be taxed anyway,” an executive from Nippon Steel & Sumikin Stainless Steel Corp (NSSC) told Steel First.

“It will only help those bigger companies who are making lots of profit and can afford to invest in new projects,” he said.

“On the other hand, we are very worried about the impact of the increase in the consumption tax from 5% to 8% on consumer demand. We think the tax hike will kill demand. That means we are left with weaker demand but no (corporate) tax benefits,” the official elaborated.

Under the latest stimulus package laid out on Wednesday October 2, the Japanese government plans some ¥1 trillion ($10 billion) in tax cuts, including ¥730 billion ($7.5 billion) in tax cuts to stimulate business investment; and ¥160 billion ($1.6 billion) in tax breaks for companies willing to increase wages.

It is eyeing the end of a special corporate tax surcharge next March – a year earlier than scheduled – that was introduced to fund reconstruction following the March 2011 earthquake and tsunami.

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