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Japan Considers Tax Increases For Wealthy

Mary Swire,, Hong Kong

15 January 2013

Following the recent announcement by the new Japanese government of an economic stimulus spending program, it has become apparent that the ruling Liberal Democratic Party (LDP) and its coalition partner, New Komeito, have now turned their attention to ways to revise taxation, including increased taxes for the wealthiest taxpayers.

On January 11, Prime Minister Shinzo Abe’s government approved around JPY10.3 trillion (USD115.5bn) in additional spending on reconstruction after 2011’s earthquake and tsunami in the north-east, and more regional support and investment in education and welfare. It is hoped that the spending package will boost Japanese economic growth by 2% of gross domestic product.

However, with concerns over the increasing size of Japan’s public debt, the thoughts of the internal party tax panels are having to turn to tax reforms. In particular, with New Komeito insisting on measures to ease the effect of already-planned consumption tax increases, and with considerations on how to close the wide wealth gap in the country, the LDP is looking at how to increase revenue from the wealthiest taxpayers.

The consumption tax hikes were introduced by the previous government but, at the time, also agreed by the LDP. While the tax will increase from its present rate of 5% to 8% in April 2014, then to 10% in October 2015, New Komeito is insisting that its effect should be reduced at the same time for those on lower incomes, probably by reduced rates on food and other essential goods.

While there may be some disagreement within the coalition concerning an inheritance tax rate rise for the largest estates, which is supported by New Komeito, there is expected to be less of a problem over raising individual income tax rates for the highest-earners.

A progressive tax package, which might, for example, raise the present highest 40% income tax rate and reduce the JPY50m inheritance tax exemption amount, is likely to be announced at a coalition meeting expected later this month. It will require parliamentary approval, before becoming effective.

TAGS: inheritance tax | tax | sales tax | tax rates | tax reform | individual income tax | Japan

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