Shifting to Tax Increasing

While maintaining targeted inflation policy supported by unprecedented monetary easing, Shinzo Abe administration decided to introduce tax increase amounting to ¥280 billion next fiscal year. Leading parties, Liberal Democratic Party and Komeito, agreed on raising income tax on a businessman with ¥8.5 million of annual income or more. The government will pose tax on travelers leaving Japan or for protection of forest. Achieving the target of raising commodity price by 2% has gotten further difficult, proving the failure of Abenomics.

In the reform of income tax, the government will add ¥100 thousand on universal income tax deduction of ¥380 thousand. The deduction will not be applied the taxpayers with high income of annual ¥25 million or more. Tax deduction for the workers on monthly salary will be reduced by ¥100 thousand. The deduction for the workers with ¥8.5 million will be limited no more than ¥1.95 million. The government expects ¥90 billion of additional revenue.

Although it excludes the families with a child in the age of 22 or younger or with disabled family needing help, the policy of tax increase covers 4% of all the salary workers, which amount to 2.3 million. Even though the policy targets relatively rich workers, negative impact on consumption cannot be denied. Newspapers quoted frustration of workers, who was going to be reluctant to spend money. “It must be a penalty on the families without kids,” said a businessman without a child, whose income would reach the line of tax increase within a few years.

It is regarded as a compensation for introducing tax easing for foods at the time of raising consumption tax rate in 2019, which cost is supposed to amount ¥600 billion. Salary workers were soft targets for Ministry of Finance, because their income is more transparent than that of small business owners or farmers.

International travelers tax will pose ¥1,000 on every travelers leaving Japan. It will be introduced in January 2019. The ministry targets Asian travelers drastically increasing these years. The tax will be used for promoting tourism policy. Forest environment tax will be added on residents tax. Annual ¥1,000 will be posed on everyone from FY 2024. Cigarette tax will be raised by ¥3 on each piece from October 2018. Those three kinds of tax increase will produce ¥190 billion of additional revenue.

While the reform includes incentives for companies that raise salary of workers, change from targeted inflation to targeted taxation will cause negative economic mind of the people. In the time of criticisms on inappropriate use of governmental money for the school of Prime Minister’s friend, tax increase cannot achieve broad consensus among the taxpayers.