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ECONOMY > Economic Policy

LDP agrees on 1.5 mil. yen income cap for spousal tax deduction

  • November 24, 2016
  • , Kyodo News , 14:57
  • English Press

The ruling Liberal Democratic Party basically agreed Thursday to raise the income threshold for the spousal tax deduction system to 1.5 million yen ($13,300) from 1.03 million yen to encourage greater workforce participation by women.

 

The current threshold on annual earnings of spouses has been criticized for discouraging women from working long hours.

 

In order to avoid a decline in tax revenue, householders with annual income exceeding 11.2 million yen will not qualify for the tax deduction under the proposal by the LDP’s tax commission, LDP lawmakers said.

 

At a meeting of senior members of the tax commission, LDP tax commission chief Yoichi Miyazawa also presented a plan to raise the threshold to 1.3 million yen. But the discussions are likely to settle at the 1.5 million yen level, according to some lawmakers.

 

The LDP tax panel will make a final decision on the issue following discussions within the party and its junior coalition partner Komeito, and include the new measure in their tax reform plan for the next fiscal year starting April.

 

If the spousal income threshold is raised to 1.5 million yen, more than 3 million households with housewives working as part-timers will become newly eligible for the tax break, according to estimate by the Finance Ministry.

 

Meanwhile, the ministry projects that 1 million households will face increased tax payments following the proposed abolition of the tax break on households with annual income over 11.2 million yen. The LDP will study measures to reduce the impact on such households to ease a decline in earnings.

 

The spousal tax deduction system was introduced in 1961 to support housewives whose husbands worked outside their homes when Japan was experiencing high economic growth.

 

Under the current system, taxpayers can claim a special deduction of 380,000 yen from their taxable income if their spouse earns no more than 1.03 million yen a year.

 

But calls to revise the system have increased with some arguing it is unfair to give preferential treatment to households with full-time housewives when the number of dual-income families is on the rise.

 

The government also faces the need to come up with measures to increase workforce participation by women to cope with the country’s labor shortage amid a low birthrate and an aging population.

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