• Kyodo

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Nearly half of Japanese firms will raise wages even without further tax incentives for company pay hikes that the government is planning to introduce next fiscal year, according to a survey by a credit research company.

The survey by Teikoku Databank Ltd. indicates that more managers are prioritizing higher wages to attract and retain workers amid the country’s longtime labor shortage and rapidly graying population, although the economic outlook remains uncertain due to the fallout from the coronavirus pandemic.

The ruling Liberal Democratic Party and its junior partner Komeito are considering expanding an existing tax reduction system to encourage companies to raise wages as part of a tax reform package for fiscal 2022 starting April, under Prime Minister Fumio Kishida’s signature policy of correcting wealth disparities by boosting middle-class incomes.

In the survey conducted in mid-November, 802, or 48.6%, of the 1,651 companies that responded said they will raise wages regardless of the scale of tax breaks. Nearly 90% of those surveyed were medium-sized companies such as those that have capital of up to ¥300 million ($2.6 million) or up to 300 employees.

The figure stood at 53.6% among large companies, compared with 47.9% among small and medium-sized businesses.

Of the total, 8.5% said they would raise wages if tax incentives are expanded, while 22.3% said they would consider increasing pay, meaning “79.4% of the total were positive” regarding wage hikes, Teikoku Databank said.

Meanwhile, 8.1% replied that they were unable to increase wages regardless of the scale of tax breaks and 12.5% said they were not sure what they would do.

Under the current system, if salary payments for newly hired workers are raised by more than 2% from the previous fiscal year, large companies get corporate tax deductions equivalent to 15% of the payments.

Small and medium-sized companies also get a 15% tax deduction when salary payments for all employees are increased by over 1.5%.

“The labor crunch had eased due to the economic impact of the coronavirus, but it has become significant again. Under such circumstances, attracting and keeping employees has emerged as an important challenge for many businesses,” said a Teikoku Databank public relations official.

Since taking office in early October, Kishida has said he will aim to encourage pay hikes through tax incentives. Late last month, he said he hopes businesses that have recovered to pre-pandemic levels will raise wages by more than 3%.

The Cabinet is expected to approve the tax reform package late this month after getting the thumbs-up from the ruling coalition.

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