TOKYO (Reuters) – Japan unveiled tax measures on Thursday aimed at encouraging companies to spend their cash piles on start-ups and other investments and stimulating a slowing economy, while also helping firms to compete with China’s advance in 5G technology.
The annual tax revision for fiscal 2020, formally decided by the ruling Liberal Democratic Party (LDP) and its coalition ally Komeito party, focused on steps to encourage Japanese firms to spend their internal reserves of over 460 trillion yen ($4.23 trillion), lawmakers said.
For years Japanese companies have been sitting on a record cash-pile as they remain wary about boosting wages and investment.
Japan’s economy grew at an annualised rate of 1.8% in July-September, backed by capital spending and domestic demand, but analysts expect growth to slow in the current quarter as the Sino-US trade war and the national sales tax hike likely weighed on the world’s third-largest economy.
Weak business spending would be another blow to Prime Minister Shinzo Abe’s stimulus policy, or “Abenomics”, which is aimed at stoking a cycle of higher wages, household and corporate incomes and spending.
5G security concern
The new scheme will allow a 15% tax break to mobile phone carriers and other businesses investing in 5G infrastructure to help domestic firms compete with China’s strides in the next-generation communications network.
The rollout of 5G networks, with speeds fast enough to download a movie to a smartphone in seconds, has raised security concerns in the United States over equipment for the upgrade supplied by Chinese telecommunication firm Huawei.
“5G taxation marks the beginning of a new era as information technology greatly includes the national security point of view,” LDP tax panel Chief Akira Amari told reporters after a meeting with ruling bloc lawmakers approved the tax revision.
“With this tax revision, I believe we managed to raise a flag so that Japan can lead America and EU on 5G development,” Amari said. He made no mention of China.
Japanese companies eligible for the tax incentive will include mobile phone operators, and those preparing 5G networks for smart factories and smart agriculture using artificial intelligence in rural areas.
The overall tax revision is expected to have no big impact on annual tax revenue, Amari added.
The revision follows Abe’s announcement last week that the government will roll out fiscal stimulus worth 13.2 trillion yen in spending.
The tax revision for the next fiscal year also includes preferential treatment for companies investing in businesses focusing on innovative technologies.
The new scheme will also allow businesses that invest 100 million yen or more in start-ups established less than a decade earlier, to deduct 25% of that investment from taxable income.
($1 = 108.6400 yen)
(By Tetsushi Kajimoto; Reporting by Tetsushi Kajimoto; Editing by Shounak Dasgupta)