The government and ruling camp are discussing plans to raise the maximum tax deduction rate to 40% for smaller businesses that raise employee wages, it was learned Friday.

They are also working on the tax deduction rate for large companies, in order to reflect them in the ruling parties’ tax system reform proposals for fiscal 2022, which starts in April, to be drawn up by Dec. 10.

Revisions to corporate tax reductions intended to encourage pay hikes are the biggest focus of the forthcoming tax system reform. Under the current system, large companies can deduct up to 20% of employee wages from their corporate taxes and smaller businesses are given a deduction of up to 25% if they meet a set of conditions, including a certain degree of wage increase.

The administration of Prime Minister Fumio Kishida, which aims to create a cycle of economic growth and wealth redistribution, regards the tax reduction for companies that raise wages as one of its key policy measures.

The Kishida government aims for a drastic revision of the tax reduction system, which was established in fiscal 2013 under the government of then-Prime Minister Shinzo Abe, in a bid to shore up the wages of all workers.

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