LDP, DPFP Agree to Raise Taxable Income Threshold to 1.78 M. Yen

Tokyo, Dec. 18 (Jiji Press)–Japan’s ruling Liberal Democratic Party and the opposition Democratic Party for the People agreed at a meeting of their tax panel chairs on Thursday to raise the taxable income threshold from the current 1.6 million yen to 1.78 million yen. The higher threshold will apply to people with an annual income of no more than 6.65 million yen, who account for about 80 pct of taxpayers. It will be included in the ruling bloc’s fiscal 2026 tax system revision outline, to be adopted on Friday. The agreement was formalized at a meeting later on Thursday between Prime Minister and LDP President Sanae Takaichi and DPFP chief Yuichiro Tamaki. The LDP’s current and previous coalition partners, the Japan Innovation Party (Nippon Ishin no Kai) and Komeito, respectively, also agreed to the threshold hike. The taxable income threshold is the sum of the basic deduction for all income earners and the employee income deduction for salaried workers. Both levels will be raised by 40,000 yen to reflect inflation. Additionally, a temporary measure will be taken in 2026 and 2027 to raise the total deduction to 1.78 million yen for people with an annual income of up to 6.65 million yen. As a result, income tax payments will decrease by around 30,000 yen to 60,000 yen, depending on the income level. In December last year, the then LDP-Komeito coalition and the DPFP agreed to aim to raise the taxable income threshold to 1.78 million yen. While the LDP has considered lifting the threshold to 1.78 million yen only for low-income earners, the DPFP has argued that the middle class should also benefit from a lower income tax burden. The LDP and the DPFP also agreed to abolish the environmental performance-linked tax on automobile purchases, as demanded by the DPFP. The government and the ruling bloc had planned to suspend the tax for two years from fiscal 2026. Elsewhere in the fiscal 2026 tax system reform, the government will reduce the corporate tax break for companies raising their employees’ wages and exclude large companies from this measure. Meanwhile, a new system will be introduced to allow companies in all industries to deduct 7 pct of the value of their capital investments from their corporate tax payments. The vehicle weight-linked tax for electric vehicles and plug-in hybrid vehicles will be increased, effective from May 2028. Under the Nippon Individual Savings Account, or NISA, tax exemption system for small-lot investments, the eligibility for the accumulated investment program will be expanded to cover people under 18. The gift tax exemption for providing lump-sum education funds to children and grandchildren will be terminated. END [Copyright The Jiji Press, Ltd.]