4％-4.5％ corporate surtax approved at LDP commission meeting

The Yomiuri Shimbun

17:24 JST, December 15, 2022

A proposal to raise taxes to fund significant improvements in Japan’s defense capabilities was approved Thursday at an executive meeting of the Liberal Democratic Party’s Research Commission on the Tax Systems, including a surtax of 4% to 4.5% for corporate tax.

The proposal cites “appropriate timing in fiscal 2024 or later” for the tax hikes’ implementation. The LDP and Komeito’s outline for tax reform for fiscal 2023 is expected to be compiled on Friday at the earliest.

Based on the discussions at Thursday’s meeting, the surtax will be introduced to add a certain percentage to the annual corporate taxes paid by companies as a special measure, without changing the original tax rate. The proposal calls for the establishment of a tax deduction system so that the burden will not increase on companies with incomes of less than ¥10 million, but the government is considering raising the income threshold to ¥20 million or more to exclude even more small and medium-sized companies.

The special income tax to secure funds for reconstruction from the Great East Japan Earthquake is expected to be lowered to 1.1% from the current 2.1%. Instead, a 1% surtax will be applied to the standard income tax for the defense budget.

Members at the LDP meeting agreed to extend the tax beyond its currently scheduled end in 2037, “extending it as long as necessary to ensure the total amount of reconstruction funds is secured.”

The tobacco tax will be raised in stages by the equivalent of ¥3 per cigarette, in a plan that basically applies to heated tobacco products. A tax hike on paper cigarettes will be considered based on the impact on domestic leaf tobacco farmers.

“We want to ask the public for their cooperation regarding the taxation system, to secure peaceful and prosperous lives for the people and fulfill our generation’s responsibility to future generations,” Chief Cabinet Secretary Hirokazu Matsuno said at the meeting.

“I hope to have a general outline of the taxation system finalized by Friday,” Matsuno said.