Income Tax Discussion Breaks Up

The Policy talk between the leading coalition, the Liberal Democratic Party (LDP) and Komeito, and the Democratic Party for the People (DPP) ended up without reaching a deal. LDP and Komeito submitted a revised bill for raising threshold of annual income for imposing income tax without consent of the DPP. Although the leading coalition does not have a majority in the House of Representatives, it expects Japan Innovation Party (Nippon Ishin-no Kai) to approve the bill.

In the current taxation system, a person with 1.03 million of annual income (including salary) or less will not be imposed income tax. The DPP demanded that threshold be raised up to 1.78 million yen to include more people who are exempted from any income tax. The leading coalition raised the current threshold to 1.23 million yen and submitted FY 2025 bill for that policy. The DPP refused that offer, considering it as insufficient.

 

The leading coalition brought revised version of tax reduction. To minimize fiscal mobilization, the offer divided the recipients into four types according to their annual income. A person with 200 million yen of annual income or less will not be imposed income tax on 160 million yen of the income. If the income is between 2 million yen and 4.75 million yen, the income tax will be exempted on their 1.53 million yen of income.

 

1.33 million yen will be deduced from the income between 4.75 million yen and 6.65 million yen of annual income for income tax. The people within the range between 6.65 million yen and 8.5 million yen of annual income will be imposed on the income tax with deduction of 1.28 million yen. For the rest of the people with annual income of 8.50 million yen or more, the tax exemption is set at 1.23 million yen.

 

It was so difficult for the government of Japan to find fiscal resource for tax reduction that the system became too complicated for the taxpayers to realize the benefit of it. The leading coalition is going to revise FY 2025 budget bill to shift 620 billion yen from reserve fund for unexpected events, such as natural disaster, to tax reduction.

 

The DPP is still unsatisfied, insisting on 1.78 million threshold for all. It was supposedly because the revised offer from the leading coalition was too small for the DPP to appeal an achievement for their election campaign of House of Councillors in July.

 

The total votes of the LDP and Komeito does not reach a majority in the House of Representatives. They have made a deal with Ishin on high school tuition to secure the majority. However, it is unsure whether Ishin will support LDP-Komeito version of income tax reduction. It is likely for the leading coalition and Ishin to have further discussion for FY 2025 budget.

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