Japan

Ruling parties approve income tax reform package for FY2018

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Japan's ruling coalition Thursday unveiled a fiscal 2018 tax reform package which would raise income taxes on workers earning over 8.5 million yen a year and taxes on tobacco products as well as introduce a new departure tax on passengers leaving Japan.

The Liberal Democratic Party and its coalition partner Komeito party also vowed to provide tax credits for companies that increase wages and capital investment, seen as vital to economic growth.

From October 2018, the tobacco tax will be raised by 3 yen per cigarette over a four-year period, while the tax on relatively new heat-not-burn tobacco products will also be increased in stages.

Securing stable revenue sources is a critical task for debt-ridden Japan, where the rapidly aging population is causing social security costs to shoot up, limiting room for spending increases on anything else.

Japan will introduce a departure tax from Jan 7, 2019, ahead of the 2020 Tokyo Olympics and Paralympics, to accumulate revenue to fund spending on infrastructure and services for visitors.

Both Japanese and foreign passengers will be required to pay 1,000 yen when leaving Japan by air or sea. Toddlers under the age of 2 and transit passengers leaving Japan within 24 hours of their arrival will be exempt.

A new annual forest management and conservation tax of 1,000 yen per person is also included in the proposals, on which the government will prepare and submit necessary legislation to the Diet session beginning in January.

Under income tax system changes to take effect from January 2020, all taxpayers will see their tax-free threshold increase by 100,000 yen, to 480,000 yen, while deductions for employment income and pensions will be cut by 100,000 yen.

For salaried workers earning more than 8.5 million yen a year, the maximum amount of deductions allowed will be lowered to 1.95 million yen from 2.2 million.

But salaried workers with children up to age 22 and people needing nursing care will be excluded from that limit on deductions.

The latest income tax reforms come a year after the government decided to raise the annual income threshold for spousal tax deductions, in line with Prime Minister Shinzo Abe's drive to boost the participation of women in the labor force.

After nearly five years as prime minister, Abe has yet to declare that deflation has been defeated, with policymakers and economists largely attributing its persistence to sluggish wage growth.

Under the tax reform package, large companies that raise pay by 3 percent or more will qualify for a tax credit of up to 20 percent of the increased salary payments.

Small and medium-sized companies will qualify for an even larger tax credit of up to 25 percent if they increase employee pay by over 2.5 percent and invest in human resource development.

© KYODO

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