Complicated Tax Cut

Prime Minister, Fumio Kishida, expects that the tux cut starting from June 1^st will enhance his political basis damaged by the slush fund scandal. The people, however, are not realizing the benefit of it, because the system for the tax cut is too complicated. It is unclear whether Kishida will be successful in achieving political advantage by implementing his policy.

Kishida announced the tax cut last October as a fruit of economic growth. Recognizing that the revenue of income tax and residential tax had increased by ¥3.5 trillion for two previous years, Kishida decided ¥40,000 of tax cut for each taxpayer and its dependent families. A household with four families will receive ¥160,000. Although there were some arguments that the increase in revenue was not brought by economic growth but inflation or other reasons, Kishida insisted on the tax cut to appeal his handlings of economic policy.

 

The government of Japan would not release its gain so easily. The system of tax cut is not easy to understand. The government divided the ¥40,000 of tax cut into ¥30,000 for income tax cut and ¥10,000 for resident tax cut. The income tax cut will be divided into every month between June to December. The resident tax cut will be made between this June and May 2024 in the same manner.

 

A taxpayer whose annual income exceeds ¥20 million cannot receive the tax cut. About 18 thousands of households, which income level is too low to pay tax and exempted from paying income tax, will receive ¥100,000 of allowance instead. Total taxpayers who receive ¥40,000 of tax cut amounts to 90 million, three quarters of all Japanese citizens. A taxpayer who does not pay annual tax less than ¥40,000 will receive some allowance.

 

The local governments which deal with taxation for their residents and accounting section of companies are forced to manage the complicated works for returning tax to taxpayers. Knowing the frustration of the workers in those offices or not, Kishida required every office to describe the details of tax cut in their monthly statement of their salaries for each employee. That requirement is supposed to be a measure so that the people can realize benefit coming from Kishida’s policy.

 

The biggest question is whether the tax cut will lead to further consumption and creating positive cycle of economy. It was reported that the real wage in March marked consecutive declines for twenty-four months, which indicated wage hike was still lagging behind price hike. Energy price and the payment for medical treatment or pension is going to be raised.

 

The timing of starting this tax cut has some meanings. June 2024 is three months before the presidential election of the Liberal Democratic Party, in which Kishida hopes to be reelected. Kishida needs some leverages for it. To maintain his administration as long as possible, Kishida has been considering dissolution and snap election of the House of Representatives. The tax cut would have been an achievement to appeal to the public. However, the result of three by-elections in April and the gubernatorial election in Shizuoka in May were against that option.