The Liberal Democratic Party and its coalition partner Komeito have decided on an outline for tax system revisions for fiscal 2017, the main pillar of which is to increase the tax burden for high-income earners, sources close to the government said on Wednesday.
Reviewing the spousal tax deductions for income taxes has been a major issue in the tax system revisions. The outline says that the review of the deduction is “the first step” toward income tax reform. It also says that the current system of spousal tax deductions will be fundamentally revised over a period of few years.
The ruling coalition parties’ tax system consultation council will be held on Thursday and it will officially adopt the outline.
Regarding the spousal tax deductions, experts have cited the “¥1.03 million wall” as a hindrance to women’s employment. The outline says that it will create “a system in which [part-time workers and other types of workers] do not have to worry about making adjustments to working hours.” Currently, the income tax of a household’s main earner is reduced if that person’s spouse’s annual income is ¥1.03 million or lower. The outline clearly states that the limit of ¥1.03 million will be increased to ¥1.5 million.
To make up for the expected loss in tax revenue, households in which the chief earner’s income exceeds ¥12.2 million annually will be ineligible to receive the tax break.
A large number of corporations that offer spousal allowances to married employees do not give the allowances to employees whose spouses earn more than ¥1.03 million a year.
The outline cites the allowances as another reason why a spouse might limit their working hours. The outline urges each corporation “to review [the allowance system] based on discussions between labor and management.” It is unusual for the outline to request a review of a system of private corporations.
At first, the ruling parties had considered abolishing the current deduction system and creating a new system applying to married couples. However, the outline concluded, “It is difficult to immediately adopt [these revisions].”
Meanwhile, the outline says that under the current deduction system, “workers with higher incomes receive greater benefits.” The outline includes a plan to reduce tax breaks for high-income earners. The plan to reduce the tax breaks will be examined over the period of a few years while studying relevant systems in other countries.
Regarding the liquor tax system, the outline plans to unify the tax rates for beer, happoshu low-malt quasi-beer and third-segment beer with little or no malt content. The tax rate for beer will be reduced and the rate for happoshu and third-segment beer will be increased. The tax rate for these beverages will be unified at ¥54.25 for a 350-milliliter can in October 2026. In an effort to avoid the burden of a sharp increase for consumers, the revision will be introduced in three stages.
Also, the tax rates for sake and wine will be unified to ¥35 per 350 milliliters in October 2023. The revision for sake and wine will be applied in two stages.
The outline also included an expansion of the tax system for promoting research and development, aiming at boosting the so-called “fourth industrial revolution” that will make the most of big data and artificial intelligence.
In connection with the planned hike in the consumption tax rate from the current level of 8 percent to 10 percent, the outline states, “[We will] certainly implement it on Oct. 1, 2019.”
A reduced tax rate for daily necessities is planned to be introduced at the time of the hike. The outline says, “We will make utmost effort for the smooth introduction and operation of the system after examining the progress of preparation by business operators.”