Japan Could Add To Tax Burden On Wealthy

by Mary Swire, Tax-News.com, Hong Kong

15 December 2010

The Japanese government’s tax commission, which is led by Finance Minister Yoshihiko Noda, is expected to propose an increase in income taxes for the highest earners in its draft tax proposals for the next fiscal year.

The income tax changes would be proposed as part of an apparent move by the ruling Democratic Party of Japan to increase the redistribution of income in the country and to produce additional revenues for the government’s spending programmes, particularly its child allowance plans.

Despite the fact that Japan's individual income tax rates, including local taxes, are among the highest, with an effective top marginal tax rate of around 50%, the commission is said to be proposing to cap personal income tax exemptions for those earning more than JPY15m (USD213,500) per year.

It has also been reported that it would also cancel income tax exemptions given to families with adult dependants, except where those dependants are students, elderly or disabled, and increase inheritance tax rates.

It is not known whether the above changes could ever be enacted, as the government will need the support of opposition members to take its measures through parliament. Opinions have already been expressed against the measures, in part because they could reduce consumer spending in an already-faltering economy.

The commission is expected to announce its overall fiscal programme in the next few days. There still appeared to be some debate as to whether a 5% reduction in the corporate tax will be finally decided upon, and also whether the existing tax breaks on stock investments will be allowed to lapse, as has been previously suggested.

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