The Liberal Democratic Party and Komeito on Jan. 24 adopted a tax outline for fiscal 2013, with emphasis on support to business enterprises, including measures to encourage wage increases, employment expansion, capital investment, and investment for research and development.
The outline envisages a tax reduction of some ¥250 billion in fiscal 2012 in both national and local taxes. The ruling coalition apparently hopes to increase voters’ support in the coming Upper House election by presenting tax measures expected to contribute to pulling the Japanese economy out of deflation. If the economy fails to pick up and tax revenues do not increase, Japan will be forced to rely more on debt financing.
Reflecting the desire of the auto industry, the automobile acquisition tax, under which a 5 percent tax is levied on passenger cars, will be abolished in October 2015 when the consumption tax rate is raised to 10 percent following a hike to 8 percent in April 2014 from the current 5 percent. Abolition of the tax will help the auto industry, which fears that the consumption tax rate increase will dampen car sales.
Although some ¥200 billion revenues from the tax is for use by local governments, the ruling coalition has failed to mention how to make up for the loss.
In fiscal 2009, the Aso administration changed the automobile weight tax from a road-specific tax into a general purpose tax. But the new tax outline says that the tax’s nature will be reviewed so that its revenues will be used for “road maintenance and renewals.” This carries the danger of turning the tax into a pork barrel fund for construction industry.
The tax reduction for those paying back housing loans, which was to end at the end of fiscal 2013, will be prolonged for four years. For those who start living in new residences in or after April 2014, the reduction will be doubled to up to ¥400,000.
Although the tax outline states that the government will aim to introduce lower tax rates for food and other daily necessities when the consumption tax rate is raised to 10 percent in October 2015, it is unclear whether such a reduction will be actually carried out.
In an apparent move to quell complaints from low-income people about consumption tax rate hikes, income tax for high-income people and the inheritance tax will be raised from January 2015. The maximum income tax rate will be raised from the current 40 percent to 45 percent for a portion above ¥40 million in taxable income. The basic deduction for taxable inheritance will be reduced and the maximum inheritance tax rate will be raised from the current 50 percent to 55 percent for a portion above ¥600 million in taxable inheritance.
No gift tax will be imposed for three years from April 2013 if a person presents ¥15 million or less to each child or grandchild younger than 30 as an education fund. But this system only benefits rich people. For 25 years from January 2013, a 2.1 percent surcharge will be added to income tax to raise funds for the reconstruction of areas hit by the 3/11 disasters. From June, a surcharge of ¥1,000 will be added to the resident tax for the same purpose.
People who have no plans to buy residences or cars, or do not have the financial means to give their offspring multi-million yen gifts will shoulder the greatest burden of tax increases. The tax outline is not likely to ease the lives of ordinary citizens.