Why is Japan reviving debate on higher tax on investment income?
By Makiko Yamazaki
TOKYO, Sept 6 (Reuters) -Japan's ruling party leadership race has revived debate on raising the country's tax on income from investments, a policy once shelved by the outgoing prime minister, as the world's No. 4 economy seeks to raise revenue to finance its massive budget.
HOW ARE CAPITAL GAINS AND INVESTMENT INCOME TAXED NOW?
The tax on income from investments - imposed on capital gains on stock and property, dividends and interest payment on savings and Japanese government bonds - is uniformly set at 20%, below progressive tax rates on salaries of up to 45% in an effort to encourage investment.
The flat-rate tax system helps lower the overall burden for high-income earners, who tend to earn more through investments. The issue is commonly called the "100-million-yen wall" problem as tax burdens relative to income drop for earners of more than 100 million yen ($698,080).
WHAT WAS OUTGOING PRIME MINISTER'S POLICY?
Raising the investment tax rate was one of the key policy pledges of Prime Minister Fumio Kishida when he took office in 2021, as he sought to rectify wealth disparities in his "new capitalism" drive.
But Kishida soon shelved the plan as he faced criticism from investors, who feared a potential shift from market-friendly economic policies under former Prime Minister Shinzo Abe and blamed Kishida for the falling stock market at the time.
Kishida's "new capitalism" agenda later shifted its focus to turning dormant household savings into investments, partly to hedge against rising inflation, making permanent a programme that offers tax breaks for households' stock investments.
Kishida is stepping down this month, ending a three-year term marred by political scandals. The ruling Liberal Democratic Party (LDP) is set to elect a new leader on Sept. 27 and by extension the country's next prime minister.
WHO IS TALKING ABOUT IT NOW?
Shigeru Ishiba, the former defence minister running in the leadership race, told a broadcaster that he would beef up the taxation on investment income if he became the next prime minister.
The comments prompted other candidates to express their own views.
Digital Minister Taro Kono, former environment minister Shinjiro Koizumi, and former economic security minister Takayuki Kobayashi expressed opposition, saying the policy would go against the government's efforts to encourage a shift from savings into investments.
Ishiba later clarified that higher tax levies should be applied only to the rich.
About half of 2,000 trillion yen ($14 trillion) in household financial assets are sitting in cash or bank deposits, which the government is trying to change through policy measures including the NISA tax-free stock investment programme for individuals.
Higher investment tax levies, if officially proposed, would need to be deliberated first at the ruling party's tax panel toward year-end, where such a plan is likely to meet some opposition. Komeito, the junior coalition partner of the LDP, has also expressed reservations.
($1 = 143.2500 yen)
Reporting by Makiko Yamazaki; Editing by Stephen Coates
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
