By Yoshifumi Takemoto and Nathan Layne
Japan's corporate tax rate is among the highest in the world (...) idea of slashing the corporate tax, (...) received a lukewarm reception from analysts and policymakers, (...) Abe is considering, (...), cutting the corporate tax rate to between 25 and 30 percent. (...) Set at 38 percent (...) Japan's corporate tax rate is well above the global average of 24 percent,(...) Currently, the only planned cut in the corporate tax will come (...) 2015, would bring it down to 35.6 percent. (...)
(...) no guarantee that a tax cut would convince companies to invest more, given how much cash they have been hoarding.
(...) corporations outside the financial sector had 225 trillion yen - almost $2.3 trillion - in cash as of the end of March, according to data from the Bank of Japan. They have been building that surplus steadily since the 2008 credit crisis (...) much larger U.S. economy had liquid assets of just $1.8 trillion, according to the Federal Reserve.
(...) fewer than 30 percent of companies actually pay corporate tax. The rest are either unprofitable, or they are able to apply tax credits accumulated from losses incurred during the lean years. (...) overhang of cumulative losses, (...) currently totals around 76 trillion yen ($776 billion), according to National Tax Agency data, (...)
Lowering the tax rate would require companies that have booked losses as deferred tax assets to write down the value of those assets (...)
As earnings have improved some companies have run down their credits. Two of Japan's largest banks, for example, just started paying tax again last year following a tax-free decade.
Sony Corp (...) have in recent years written down tax assets (...) but the overall industry remains vulnerable to further write downs (...) Any company that has large deferred tax assets on its balance sheet will have an exercise of writing down those assets,"(...)
going to then be flushed to the bottom line and impact earnings per share." Lim said.
Write-downs (...) unlikely to be sizeable enough to be a serious problem for Japanese companies, but (...) widen the gap between strong and weak firms, (...) "It speeds up the good versus the bad. That's sort of a nice technicality about the whole thing," Koll said.
- I touched on this subject before here: Reforming the Tax System in Japan ;as for FY 2011 Corporate Japan had to write down DTA, in some cases significantly
- Cash- Flow wise DTA write downs a non event (no effect on operating cash- flow). Does only impact net earnings and the asset side (net assets) of the Balance Sheet
- DTA and DTL a general problem in the analysis of financial statements, as they are neither real assets nor real liabilities! Best is to ignore them when analysing the financial statements of a company
- Cash hord of Corporate Japan is breathtaking;, especially when taking into account lower gearing of Corporate Japan compared to the rest of the world
- In aggregate Cash hoard started earlier than 2008!
- Amount of write downs on DTA on an individual level will also depend on amount of valuation allowance
- The percentage of only 30% of japanese companies paying corporate taxes at all corroborate those who hold the view that the japanese government has a revenue problem and not an expenditure problem!
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