Reduction in Effective Corporate Tax Rate (Abolition of Special Reconstruction Corporation Tax)

Reduction in Effective Corporate Tax Rate

On 5 December 2013, the Japanese government issued an ‘Economic Stimulus Package’ and clarified in it that they will abolish the Special Reconstruction Corporation Tax (equal to 10 percent of the corporation tax liability) a year ahead of the original schedule. The change will become definite after necessary amendments to the tax law are made.

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Although details have not been announced yet, it is expected that the applicable periods for the Special Reconstruction Corporation Tax will be shortened and the effective corporate tax rate will be reduced as follows:

Applicable periods for Special Reconstruction Corporation Tax

Current tax law:Fiscal years beginning from 1 April 2012 to 31 March 2015 (3 years)
Proposal:Fiscal years beginning from 1 April 2012 to 31 March 2014 (2 years)

  Fiscal years beginning before 1 April 2014 Fiscal years beginning on or after 1 April 2014
Corporation tax 25.50% 25.50%
Special Reconstruction Corporation Tax 2.55%(25.5%×10%)
Special Local Corporate Tax 4.29% 4.29%
Business tax 3.26% 3.26%
Prefectural and municipal tax 5.28%(25.5%×20.7%) 5.28%(25.5%×20.7%)
Total 40.88% 38.33%
Effective tax rate 38.01%(40.882%×100/107.55) 35.64%(38.332%×100/107.55)

(The above effective tax rates take into account the tax deductibility of Special Local Corporate Tax and business tax payments, and are calculated using Tokyo tax rates currently applied to a company whose paid-in capital is over JPY100 million.)

KPMG Tax e-Tax News No.63

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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