Japanese Prime Minister Shinzo Abe's ruling coalition on Tuesday adopted a plan to cut the country's high corporate tax rate, now standing at 34.62 percent. It said the idea was to bring the rate down to 31.33 percent over the next year in a staggered scheme starting from April, the beginning of the fiscal year in Japan.

Abe's Liberal Democratic Party (LDP) and its junior coalition partner, Komeito, emphasized the move was designed to fuel growth in the world's third-largest economy.

The underlying assumption is that lower corporate taxes will encourage companies to raise wages which in turn would spur consumer spending. Firms across the nation are also expected to invest some of the $1.9 trillion (1.56 trillion euros) in cash held by companies outside the financial sector.

Abenomics on the test bed

Earlier this year, Japanese enterprises already saw a disaster relief levy eliminated which had been imposed on them by the government in the wake of the earthquake and tsunami fallout.

"We have to continue our efforts so that the tax burden can be cut further," LDP tax policy chief Takeshi Noda told reporters.

Shinzo Abe's two-year battle to reverse years of deflation and tepid growth had initially appeared to be bearing fruit, but an April sales tax hike slammed the brakes on GDP expansion, pushing the economy into recession in the third-quarter of this year.

hg/ng (AFP, Reuters)