The Financial Services Agency is looking to beef up a tax-free investing program in an effort to shift the enormous amount of household assets held in savings accounts or as cash into investment, according to sources.
The FSA is planning on requesting an increase to the investment caps for a program known as the Nippon Individual Savings Account (NISA) and making it a permanent system as part of the tax revision for the fiscal year beginning next April.
The move aims to help accelerate Prime Minister Fumio Kishida’s key economic goal of boosting people’s asset income.
Known as the “Doubling Asset-based Incomes Plan," Kishida unexpectedly introduced the policy in May during a speech in London, a global financial hub, saying the government would expand NISA and implement some other new incentives. Kishida has said the government will come up with a concrete plan by the end of this year.
Rolled out in 2014, NISA offers three investment options that exempt capital gains and dividends from tax, which is normally imposed at about 20%.
Under the first option, people can invest up to about ¥1.2 million into assets, such as shares and mutual funds, annually until 2028, with the period of tax exemption lasting up to five years.
The second is for those who want to make smaller but longer-term investments worth up to ¥400,000 annually. They can make investments until 2042, with these being tax-free for a maximum of 20 years.
The last one, known as junior NISA, is designed for parents or grandparents to invest on behalf of their children or grandchildren under 20 years old.
The FSA is reportedly considering increasing the annual investment limits and continuing the programs after their currently scheduled end dates, making NISA permanently available.
A report released by the Daiwa Institute of Research on Wednesday estimates that in order to double middle-class people’s asset income in five years, the tax-free investment cap for the long-term NISA option needs to be tripled or more.
Some experts say that changes to NISA could increase the program’s appeal to investment beginners, with there being many people who have not started the practice.
According to a survey conducted by the Japan Securities Dealers Association (JSDA) in March, 8,776 out of 10,000 knew about NISA, but 66% of those people did not have a NISA account.
One of the main hurdles “hindering people from investing is that the system is complicated. Thus, (NISA) needs to be simpler for people to understand,” so that more people can become interested in investing their money, Yusuke Maeyama, a researcher at the NLI Research Institute, wrote in a report published last month.
The Daiwa Institute of Research report also pointed out that the designated time frames for investment, which have changed and are scheduled to be changed, as well as other revisions, are difficult for people to understand.
In that sense, “the investment time frames and tax-free time periods should not be phased out to make it a core asset building tool for the middle class,” the report said.
Even for those who have created a NISA account, not everyone has actually made an investment.
As of last December, there were a total of 17.65 million NISA accounts, but about 40% of account holders did not invest at all last year, according to FSA data.
The JSDA’s survey showed that the second most common reason why NISA users were not investing was that they did not know what to purchase because there were so many financial products.
The government has been trying to encourage investment for more than two decades, but the attempt has not been particularly successful.
According to data from the Bank of Japan, financial assets held by Japanese households totaled over ¥2 quadrillion as of December, but 54% of that was sitting in basic savings accounts or held as cash. During the same period, bonds, stocks and mutual funds accounted for a mere 16%.
Some experts have pointed out that the indifference toward investing stems from growing uncertainty about the future, as the country’s economic and wage growth have been sluggish.
The report by the Daiwa Institute of Research also stressed the importance of improving education so people acquire more personal financial literacy.
“People with higher literacy in finance tend to invest in stocks and mutual funds more. ... There are not a lot of financial education programs sponsored by the public for working adults,” it said.
Information from Kyodo added
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