© Reuters. FILE PHOTO: A worker holds a sample of a new Japanese yen banknote at a factory of the National Printing Bureau producing Bank of Japan notes at a media event about the new notes scheduled to be introduced in 2024, in Tokyo, Japan, November 21, 2022. REUT
By Tetsushi Kajimoto
TOKYO (Reuters) -Japan’s ruling bloc formally agreed on Friday to revise the national tax code for the next fiscal year starting in April, aiming to shift household assets into investment as part of Prime Minister Fumio Kishida’s “new capitalism” agenda.
The ruling Liberal Democratic Party (LDP) and its ally Komeito also endorsed an urgent plan to raise corporate, tobacco and disaster-reconstruction income taxes by 1 trillion yen ($7.3 billion) to help double the defence outlay to 2% of GDP by 2027.
The annual tax-code revision is expected to be approved by Kishida’s cabinet on Friday.
“The tax talks this year were different from a normal year,” LDP tax chief Yoichi Miyazawa told reporters. “What everyone wanted to hear the most is on how the defence tax would go.”
On tax-code reform, Kishida has sought to shift Japan’s 2 quadrillion yen ($14.52 trillion) in household assets away from savings and into investment, under his flagship initiative aimed at redistributing income.
As part of this initiative, the government will make permanent a programme that offers tax breaks for households’ stock investments. It will triple the limit on investments eligible for tax breaks starting in 2024.
To narrow income disparities, the government will apply higher capital gains tax rates for households with annual income above 3 billion yen.
PUTTING OFF TAX TALKS
In contrast with steady progress on other tax talks, the ruling coalition stopped short of confirming when to implement the defence tax increases. They effectively put off the decision until next year because of stiff opposition to tax increases from within the LDP as Kishida’s popularity wanes.
“It will be implemented at “an appropriate time” from 2024 onwards,” Miyazawa told reporters on Thursday.
Under the plan, Japan would adopt a corporate surtax of 4%-4.5%, with a deduction of 5 million yen for small firms, while lowering reconstruction income tax to 1%, and imposing a surtax of 1% on incomes for the time being. The tobacco tax will be also raised in stages by 3 yen per cigarette.
As for tax revenue for the next fiscal year, Miyazawa said it was hard to estimate what the results of tax reform would be.
The ruling party officials vowed to ensure disaster reconstruction income tax receipts would not be reduced in supporting those who are suffering from disasters in the northeast, including Fukushima.
($1 = 137.4000 yen)