Implementing Agreement on Income Tax Threshold

Sanae Takaichi administration considers raising the threshold of income tax from current annual 160 million yen to 178 million yen. The level of threshold has been proposed by the Democratic Party for the People (DPP), arguing that it is the core issue for the party. Prime Minister Takaichi seems to have made the decision to approach the DPP for further stability of her administration.

Income tax on every individual is imposed with rate of 5 to 45 percent, depending on volume of income. Then, certain deduction is applied to the income. 580 thousand yen is basically deducted from annual income. Another 650 thousand yen of deduction is applied to a salary worker. And the government introduced additional 370 thousand yen of special deduction for a salary worker in 2025. Total tax deduction is currently 1.6 million yen.

 

The current tax deduction system means that a worker who earns 1.6 million yen or less does not need to pay income tax. That is the system of threshold of income tax. It was introduced in December 2024, based on the agreement among leading coalition of the Liberal Democratic Party and Komeito, and the DPP. However, the DPP has been frustrated with the threshold at 1.6 million yen, insisting on its original idea of 1.78 million yen, which was drawn by calculation on the rise of minimum wage.

 

Takaichi administration discusses that the threshold should be raised to annual 1.78 million yen by increasing basic deduction from 580 thousand yen to 620 thousand yen, deduction for salary worker from 650 thousand yen to 690 thousand yen, and special deduction for salary worker from 370 thousand yen to 470 thousand yen. Total deduction becomes 1.78 million yen.

 

LDP Research Commission on Tax System mostly approved 1.78 million yen of income tax threshold. However, the threshold will be applied only to low-income families, according to the LDP plan. The DPP still requests to expand the tax deduction for the middle class. “We may need to make political decision,” said DPP leader, Yuichiro Tamaki, indicating some concession for a deal.

 

The DPP firmly insisted on implementation of raising threshold to 1.78 million yen. While Takaichi sought forming a coalition with the DPP, when she was elected LDP president. One of the reasons why the DPP did not accept Takaichi’s offer was that threshold of 1.78 million yen would not be implemented by the LDP.

 

Although the LDP achieved a simple majority in the Lower House, with coalition with JIP and some independent lawmakers in the parliamentary group of the LDP, Takaichi administration still in short of majority in the Upper House. The DPP can suffice to obtain simple majority in the Upper House, if it joins the leading coalition. Takaichi is proposing raising income tax threshold to invite the DPP into the coalition, or pave the way for the DPP to support LDP’s policies in the Diet discussion.

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