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The ruling Liberal Democratic Party (LDP) in Japan is exploring the possibility of making the income tax threshold adjustable based on consumer prices, a senior party official said on Monday.
Itsunori Onodera, chair of the LDP’s Tax System Research Commission, emphasized the need to shape a tax system “from a perspective close to citizens,” rather than assuming that tax increases are inevitable. He suggested that linking the threshold to consumer prices, which reflect the cost of everyday goods, would be a natural step.
Background on the Threshold
The income tax threshold, which determines the point at which individuals begin paying income tax, is based on the sum of the basic deduction and the salary income deduction. The LDP previously raised the threshold from ¥1.03 million to ¥1.6 million this year.
Last year, the LDP and its then coalition partner Komeito agreed with the opposition Democratic Party for the People (DPP) to eventually raise the threshold to ¥1.78 million. The DPP continues to advocate for this adjustment in line with increases in minimum wages.
Onodera confirmed that discussions on the matter will continue, signaling that further changes could be made in the coming months.
Addressing Potential Revenue Shortfalls
The proposed adjustment comes amid projections of a ¥1.5 trillion drop in central and local government revenue due to the planned abolition of temporary gasoline and diesel tax surcharges. To offset this shortfall, the LDP plans to review special tax measures for corporations and potential taxes on high-income earners.
“Our aim is to discuss the ideal form of our tax system from a citizen-focused perspective,” Onodera said. “We should not presume tax increases are inevitable, regardless of the policy decisions we make.”
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