Japan should cut corporate tax to boost FDI: ACCJ

By Yoko Nishikawa

TOKYO (Reuters) - Japan should cut its corporate tax -- one of the highest among major economies -- and improve its tax deferral methods to boost foreign investment in Japan, the head of American Chamber of Commerce in Japan (ACCJ) said on Tuesday.

Allan Smith also told the Reuters Japan Investment Summit that Tokyo should boost transparency in regulation, which is often unclear and without written details, while firms should increase outside directors on their board to bring a more objective view to their management decisions.

The Japanese government has pledged to double foreign direct investment (FDI) in Japan to 5 percent of gross domestic product by 2010 from 2.5 percent at the end of 2006, part of an effort to stimulate economic growth in the face of an ageing society and shrinking workforce.

But experts and foreign business lobbyists have persistently said there are tax and social issues that are hindering foreign investment in the world's second largest economy.

"There are still many things Japan could do to further facilitate direct investment," said Smith, who is also the general counsel for American International Group (AIG) in Japan and Korea.

"Certainly lowering the corporate tax rate would help facilitate further foreign direct investment in Japan," he added.

Japan's corporate tax rate of around 40 percent is much higher than in other major economies -- it is around 30 percent in Britain, Germany and France -- making it less attractive for foreigners to invest here.

But Japan may struggle to cut corporate taxes due to its mountain of public debt. Voters are being told they face a higher consumption tax as an ageing population raises pension and welfare spending.  Continued...