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The Diet passed a bill Wednesday that will effectively raise income taxes next year to fix the nation’s faltering finances.

The bill to revise the Income Tax Law, which will increase the income tax burden by as much as 125,000 yen per annum at the national level, cleared a plenary session of the House of Councilors with the backing of the ruling coalition.

Together with another bill enacted March 18, the government can now halve the 1999 fixed-rate income tax cuts at the national and local levels, generating an income tax increase of as much as 145,000 yen per annum for an average household.

The two bills call for curbing the margins for tax cuts introduced in 1999 to 10 percent for national income tax and to 7.5 percent for local income tax, capping the upper limits at 125,000 yen and 20,000 yen, respectively.

The tax increase will take effect from next January at the national level and next June at the local level.

The opposition had been against the bills, saying the income tax increase would undermine the economic recovery by slowing personal spending, a move that would create another risk for Japan’s economy along with record high oil prices and credit-tightening measures in the United States.

With Diet approval of the latest bill, the next focus is whether the ruling coalition, which groups Prime Minister Junichiro Koizumi’s Liberal Democratic Party and New Komeito, will go ahead with a plan to completely abolish the 1999 income tax cuts in fiscal 2006.

The ruling parties have agreed they would reconsider the plan if the economy slows after the curtailment is made.

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