- YOMIURI EDITORIAL
- Tax reform outline
Spur households to use their assets to stimulate economy
12:30 JST, December 18, 2022
With household assets heavily held in cash, postal savings and bank accounts, it is important to guide these funds toward investments. Efforts should be made to build a system that stimulates the economy while also paying attention to correcting disparities in wealth.
The Liberal Democratic Party and its coalition partner Komeito have decided on the ruling camp’s tax reform outline for fiscal 2023. As a pillar of the “new form of capitalism” that Prime Minister Fumio Kishida has set forth, the outline proposed the expansion of the Nippon Individual Savings Account (NISA) program through which gains from small investments are tax-exempt.
NISA was established in 2014 to deal with the long-standing challenge of encouraging households to shift their assets from savings to investments. It exempts gains on the sale of investment trusts and stocks from taxation for a certain period of time.
The outline’s general policy calls for abolishing the NISA operating period and turning it into a permanent program from 2024, with the tax-exempt period likewise being made indefinite. The annual investment limit will also be greatly increased.
The outline proposes setting a cap of ¥18 million in total investments over the life of a NISA account to ensure that the benefits are not skewed toward wealthier population.
In Japan, cash, postal savings and bank accounts form the majority of households’ financial assets, which exceed ¥2 quadrillion, and investment in stocks is at a lower percentage than that in the West. With the new system, it is hoped that household funds will be channeled to corporations through the stock market, leading to economic growth.
The current NISA system has been criticized for its complicated structure, and the ruling camp is calling for a simplified new system. In order to broaden the base of investment, it is necessary to make the system easy to understand and use.
In the outline, the ruling camp decided that taxation on the wealthy population must be increased, with consideration for concerns regarding the widening disparities in wealth. Heavier taxation is scheduled to start from 2025 and is expected to apply to 200 to 300 individuals with incomes exceeding ¥3 billion. For an income of ¥5 billion, the burden is said to increase by 2-3%.
While the tax rate on employment income goes up to 55% depending on the amount, the tax rate on financial income, such as gains from the sale of stocks and dividends, is a flat rate of 20%.
The income tax burden therefore is reduced for those who have a larger proportion of financial income, and this trend becomes more notable when annual income exceeds ¥100 million. This is seen as a problem known as the “¥100 million threshold.”
It is only natural that the current situation, which could widen disparities, should be changed, and the measures in the outline cannot be said to be sufficient. Further reduction of taxation levels should be considered.
The outline also set a course to review the automobile-related taxation system with an eye toward the proliferation of electric vehicles.
If the number of EVs in use increases, revenue from levies such as the gasoline tax will drop substantially. In this regard, there are strong opinions that EV users should pay their fair share of the burden because they also use public roads. After the expiration of the tax break for EVs and other eco-friendly vehicles in the spring of 2026, this tax system will reportedly be revised.
Methods to secure tax revenue must be explored while not hindering the spread of EVs as a way toward decarbonization.
(From The Yomiuri Shimbun, Dec. 18, 2022)
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