The Liberal Democratic Party-led government is in final talks to raise tax payments for employees who earn more than ¥12 million a year, by trimming tax credits.
In its tax reform outline expected later this week, the government will propose raising the income and residential tax payments for the wealthy, sources said Sunday. The government hopes to extend that in the future to include those who make ¥10 million per year.
At present, the maximum tax credit for those earning just over ¥15 million a year is ¥2.45 million. Under the proposal, that would be reduced to ¥2.3 million for those earning ¥12 million a year.
The jump in the tax burden is planned to take effect in 2016 or later, after the doubling of the sales tax is completed in October 2015.
The 5 percent consumption tax is set to rise to 8 percent next April and 10 percent in October 2015.
LDP to swap grant funds
The ruling Liberal Democratic Party’s tax panel wants to cut grants from enterprise tax revenue to struggling local governments by ¥600 billion in fiscal 2014 and make up for it by tapping the “corporate residential tax” instead, sources said Monday.
The plan will be included in the tax reform package for fiscal 2014 to be drawn up by the LDP and its coalition partner, New Komeito, the sources said.
The enterprise tax is a local levy, but the central government collects part of it for redistribution to local governments that face a lack of tax revenue to narrow the income gaps between urban and rural communities.
The system was introduced in 2008 as a makeshift measure until drastic reforms, including a consumption tax hike, could be made to the taxation system.
In fiscal 2011, the central government redistributed about ¥1.5 trillion of the ¥3.6 trillion in enterprise tax revenue collected. This put a ¥200 billion dent in the tax revenues of Tokyo and other wealthy local governments.
The planned cut in local grants would reduce the revenue drop at the Tokyo Metropolitan Government to ¥100 billion from ¥150 billion, the sources said.
Tokyo and other local governments are calling for the system to be scrapped when the consumption tax rises to 8 percent from 5 percent next April.
To prevent the income gaps from worsening after the planned cut, the LDP’s Research Commission on the Tax System plans to launch a new system for the central government to collect ¥600 billion of the ¥2.5 trillion in revenue raised each year from the corporate residential tax, another local levy, for redistribution, the sources said.