The government and the ruling Liberal Democratic Party (LDP) are considering a tax hike for employees earning more than 8 million yen a year as part of a fiscal 2018 tax reform package, it has been learned.
Under the plan, the government is mulling reducing the amount of the salary income exemption by 100,000 yen across the board, and further slashing the deduction amount for those whose annual income tops 8 million yen. Meanwhile, the basic deduction applied to all income earners will be raised by 100,000 yen from the current 380,000 yen. Consequently, company employees with over 8 million yen annual income will face tax increases.
The income tax exemption is a system wherein tax is levied after deducting a certain amount from an income depending on the taxpayer's status. The amount of salary income exemption increases in stages depending on annual salary -- from the minimum 650,000 yen deduction to a 2.2 million yen break for earners of over 10 million yen a year. Under the reform plan, the employment income deduction will be trimmed by 100,000 yen regardless of annual salary, and the maximum deduction will be set at no more than 1.9 million yen for those earning over 8 million yen a year. Consequently, company employees with over 10 million yen annual income will face a cut in the deduction of 300,000 yen.
Meanwhile, the basic deduction will be raised to 480,000 yen, with the amount reduced in stages for earners of over 24 million yen a year. Those earning 25 million yen or more annually will no longer enjoy the basic deduction. The government, however, will consider introducing a system wherein households with children aged 22 or younger will not suffer tax increases.
Freelance workers, to whom the salary income exemption is not applied, will enjoy lower taxes as a result of these reforms.
As for the public pension deduction, pensioners with an annual income of more than 10 million yen and no more than 20 million yen aside from pension benefits will face a cut in the deduction of 100,000 yen, and those with over 20 million yen in such income will receive a 200,000 yen lower exemption.
According to the government, the tax deduction reviews are aimed at redistributing income and responding to the diversification of working styles, such as the growing freelance population. Through the revision of these three types of deductions, the government eyes a tax revenue increase of around 100 billion yen.
However, Komeito, the junior coalition partner of the LDP, is demanding that the annual income threshold for tax raises should be set at over 10 million yen, as well as that households with members in need of nursing care will not suffer from tax increases. Therefore, further coordination is eyed before a final plan is included in the tax reform package to be put together on Dec. 14.