The ruling coalition approved a tax reform package for fiscal 2021 on Thursday with planned extensions of tax breaks for home and car purchases to underpin the pandemic-hit economy.
Prime Minister Yoshihide Suga’s Liberal Democratic Party and its junior coalition partner, Komeito, also aim to encourage the private sector to work toward carbon reduction and digitalization through revisions to corporate taxation.
With the reform package, tax revenues will fall between ¥50 billion and ¥60 billion on the national level and ¥4 billion at local levels, Akira Amari, head of the LDP’s tax panel, told a news conference later in the day.
Among envisaged incentives for home buyers is an extension of a special tax cut measure for people with housing loans.
At present, those who take out housing loans by the end of 2020 are eligible for a 13-year tax reduction beyond the usual 10 years. The ruling parties are proposing an extension of the tax break to loan contracts signed by late 2022.
Property tax, which was initially supposed to increase in fiscal 2021 due to the trend of rising land prices in recent years, will be kept at the same level as fiscal 2020 in all commercial and residential areas where tax hikes had been scheduled.
The measure is meant to reflect falls in land prices following the coronavirus outbreak and lessen financial burdens on taxpayers battered by the pandemic.
The economy has been gradually recovering since the government completely lifted a state of emergency declaration over the virus in May, but consumption has yet to fully rebound. Under the emergency declared in April, requests for people to stay home and for nonessential businesses to suspend operations dampened economic activity.
As for incentives for car purchasers, the existing tax reduction for owners of eco-friendly vehicles will be extended by two years from the initial end date in May 2021. Meanwhile, conditions for such vehicles to receive tax breaks will be stricter with the introduction of the latest environmental performance standards.
The taxation policy on next-generation vehicles is not only aimed at boosting demand hit by the pandemic but also promoting electric vehicles and other eco-friendly cars following Suga’s recent pledge to achieve net-zero carbon emissions in Japan by 2050.
To financially support firms trying to slash greenhouse gas emissions, the government will deduct up to 10% of the value of investments for carbon reduction efforts from their corporate tax payments.
Pushing forward with the country’s digitalization, the government will also give preferential tax treatment to companies that regularly exchange data with other firms through cloud computing services. Some tax procedures will be digitalized.
Promoting digitalization is one of the signature policies for Suga, who took office in mid-September, as the pandemic has exposed the delay in the country’s shift to digital procedures.
As part of efforts to turn Japan into a major international financial hub, tax incentives for long-term foreign residents will be implemented. Overseas assets owned by those who live in the country for over 10 years are currently subject to inheritance tax, but will be exempted.
Bills related to the tax reform package are expected to be submitted to the ordinary Diet session beginning in January.
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