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Japan ruling parties draft FY 2022 tax reform package

  • December 9, 2021
  • , Jiji Press , 1:58 p.m.
  • English Press

Tokyo, Dec. 9 (Jiji Press)–The tax panels of Japan’s ruling Liberal Democratic Party and its coalition partner, Komeito, drafted on Thursday their tax reform package for fiscal 2022 featuring significant increases in tax breaks for companies that raise wages.

The draft package, which was adopted at the panels’ respective meetings on the day, calls for raising the corporate tax deduction rate to up to 30 pct for big companies and to up to 40 pct for smaller businesses depending on the levels of increases in pay and spending on employee training programs.

To what extent the tax breaks to encourage pay hikes should be expanded is one of the biggest issues in the ongoing annual tax reform discussions.

The LDP package also calls for keeping the tax break system for housing loan borrowers in place for four more years until 2025 while allowing 0.7 pct of outstanding loans to be deduced from income tax, down from the current 1 pct.

The duration of the tax breaks will be extended to 13 years from 10 years in principle at present for newly built homes to enable middle-income earners to benefit more from the system. The current system tends to give greater benefits to housing loan borrowers with high income amid the current ultralow interest rate environment.

A special measure that keeps the fixed property tax unchanged for residential and all other land with increased value will be terminated at the end of fiscal 2021. Instead, the size of increase in the tax will be halved for commercial land with elevated prices as a support measure for businesses amid the novel coronavirus crisis.

The tax relief program to promote corporate investments in startups will be extended into fiscal 2022 and later, with the deduction rate kept unchanged at 25 pct of the investment value.

Meanwhile, the deduction rate will be lowered for the tax relief scheme aimed at encouraging investments in 5G large-capacity ultrahigh-speed wireless communications networks.

The package said that the strengthening of financial taxation is a matter that should be discussed in the future.

Noting that the tax burden on high-income earners who earn much from financial asset management has been curbed, the LDP package stressed the need for discussions on the matter to ensure fairness. But it does not include a reference as to when a conclusion will be reached.

Prime Minister Fumio Kishida has voiced his intention to put off debates on the issue.

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