Japan Eyes ¥40,000 in Tax Reductions; Govt Aims to Implement Measures As Early As Next Spring

The Yomiuri Shimbun
Prime Minister Fumio Kishida, center, at a Cabinet meeting on Tuesday morning

A proposal to reduce income and other taxes by a fixed amount of ¥40,000 per year and to provide low-income earners with an annual benefit of about ¥70,000 has been floated within the government and ruling parties, according to sources.

The proposal was developed in response to Prime Minister Fumio Kishida’s directive to consider measures to return increased tax revenue to the public. The ¥40,000 figure was calculated based on factors including the number of taxable persons, and reflects past tax revenue increases.

Discussions are now taking place regarding eligibility for the benefits, with the aim to focus on households exempt from residential taxes. Some in the Liberal Democratic Party, however, believe that tax cuts and benefits of this size will not have a sufficient impact, and the proposed amounts are likely to fluctuate in the future.

The government intends to submit a package of bills for tax system reform, which will include elements such as the amount and duration of the tax cuts, to an ordinary Diet session to be convened in January 2024. It intends to have the bills enacted by the end of March next year.

The government has drawn up a schedule to implement the tax cuts and benefit payments as early as next spring.

The LDP’s Research Commission on the Tax System held an informal executive members meeting on Monday and began discussing specific measures to reduce taxes. A policy meeting between the government and ruling parties is planned to be held on Thursday and Kishida is expected to issue formal instructions at that meeting to consider details of the tax reductions.

At an LDP board meeting on Monday, Kishida said regarding the scale of the tax cuts, “I think that the increase in tax revenue over the past two years should be returned to the public in the form of taxes in an easy-to-understand manner.”

Yoichi Miyazawa, chairperson of the LDP’s tax commission, said that “one year would be a sensible period” for the tax cut.

Income tax reduction methods include a fixed-amount tax cut, in which a certain amount is deducted from people’s taxes, and a fixed-rate tax reduction, in which the tax rate is reduced uniformly. The government and the ruling parties intend to focus on a fixed-amount tax reduction, in which the percentage of tax reduction is higher for those who pay less tax.

The Cabinet of then Prime Minister Ryutaro Hashimoto implemented two rounds of fixed-amount income tax cuts on a total level of ¥4 trillion in 1998 as an economic stimulus package in the wake of the financial crisis. It reduced taxes by ¥55,000 for taxpayers themselves, including local taxes, and by half that amount for their dependents.

In 1999, the Cabinet of the Prime Minister Keizo Obuchi carried out a fixed-rate tax cut, offering a 20% tax cut up to a maximum of ¥290,000 without setting a time limit, which led to chronic fiscal deterioration.