Ruling Parties Plan to Lower Threshold for Ultra-Rich Tax Surcharge; Seek to Balance Strengthening Revenue with Maintaining Investor Spirit

The Yomiuri Shimbun

16:07 JST, December 5, 2025

The government and the ruling coalition are working to expand the scope of a system that imposes an additional tax burden on the ultra-wealthy as part of their fiscal 2026 tax reforms. They plan to lower the income threshold at which the surcharge is applied from level of roughly ¥3 billion a year. The aim is to address what is known as the “¥100 million wall,” a phenomenon in which a person’s effective income-tax burden drops once their annual income exceeds ¥100 million.

For earned income such as wages, the marginal tax rate — including municipal resident taxes — rises with earnings and can reach as high as 55%. By contrast, the tax rate on financial income such as capital gains from stock sales is a flat 20%, meaning that wealthier individuals who derive a larger share of their earnings from investments tend to face a lower effective income-tax rate.

According to the Finance Ministry, the average effective tax burden is 25.9% for people with annual incomes of ¥50 million to ¥100 million, but it falls to 20.1% for those earning ¥1 billion to ¥2 billion. The tax burden begins to decline around the ¥100 million income level, an issue which has long been referred to by critics as the “¥100 million wall.”

The government introduced the current framework for adding additional taxes for the ultra-wealthy in the fiscal 2023 tax reform. Under the system, a reference amount is calculated by subtracting a special deduction of ¥330 million from total income and applying a tax rate of 22.5%. If that reference amount exceeds an individual’s regular income-tax liability, the person must pay the difference as an additional tax.

The policy is believed to apply to roughly 200 to 300 people with annual incomes exceeding ¥3 billion.

As they consider further strengthening the tax, the government and ruling coalition are weighing options including reducing the special deduction and raising the tax rate. Either approach would lower the income level at which the additional tax begins, likely expanding the number of people subject to the surcharge.

At the same time, widening the net too aggressively could dampen investor sentiment and potentially trigger stock-price declines in the equity market. Details such as how much to cut the deduction and how high to raise the rate will be worked out through further debate and incorporated into the ruling parties’ tax reform outline to be finalized by year’s end.

In late October, six ruling and opposition parties agreed to abolish the temporary surtax rates on the gasoline tax and the diesel fuel delivery tax. As a way to offset the resulting revenue shortfall — estimated at ¥1.5 trillion a year — they agreed that taxation of the ultra-wealthy would be strengthened.