Japan ruling bloc adopts FY22 tax reform package

TOKYO (Jiji Press) — The ruling coalition on Friday adopted its fiscal 2022 tax system reform package focusing on measures to cushion the continuing impacts of the novel coronavirus crisis on households and businesses.

The package, compiled by the Liberal Democratic Party and its coalition partner, Komeito, calls for expanding a program offering tax deductions for companies actively raising wages and for keeping the tax break system for housing loan borrowers in place for four more years until the end of 2025.

It also includes a new fixed property tax break system for commercial land.

This is the first tax system reform since the launch of Prime Minister Fumio Kishida’s administration in early October and also the first work toward realizing economic growth and wealth redistribution, a key policy of the new Japanese leader, Yoichi Miyazawa, chairman of the LDP’s Research Commission on the Tax System, said.

“We are now prepared to support the first step of the major policy,” he told a press conference.

The envisioned tax incentive measure to encourage companies to raise wages and the fixed property tax break system are seen reducing tax revenue by between around ¥150 billion and below ¥200 billion and by some ¥45 billion, respectively.

Expanding tax incentives for businesses raising wages has been one of the biggest issues in the fiscal 2022 tax system reform.

The ruling parties decided to introduce a system in which corporate tax deduction rates are set depending on the levels of increases in employee pay and spending on worker training programs. The rate stands at a maximum of 30% for big companies and at up to 40% for smaller firms.

On housing loans, the package calls for lowering the rate of deduction from income tax to 0.7% of outstanding loans from the current 1% while extending the deduction period to 13 years from 10 years in principle in a bid to give greater benefits to middle- and low-income earners.

A special measure that keeps the fixed property tax unchanged for all land with increased value will be terminated.

Instead, a new special measure to halve the size of increase in the fixed property tax will be introduced, only for fiscal 2022, for commercial land with elevated prices, with the aim of supporting businesses hit hard by the coronavirus crisis.

To prepare for the post-pandemic era, the package calls for strengthening tax incentives aimed at promoting the creation of new industries and digitalization.

The so-called open innovation tax relief program, which allows existing companies to deduct 25% of the value of their investments in startups from their corporate taxes, will be extended for two years, with the scope of target startup companies being expanded.

The tax relief scheme aimed at encouraging investments in companies involved in 5G large-capacity ultrahigh-speed wireless communications networks will be extended for three years to help improve such networks in rural areas. The deduction rate for the program will be reviewed.

Meanwhile, the ruling parties postponed discussions on a proposal to strengthen financial income levy to fiscal 2023 tax system reform talks or later.

The current financial income taxation system has been criticized for being beneficial to wealthy people whose income from financial asset management tends to be high.