FY2024 Tax Reform Proposals in Japan [For a General Audience]

For the general audiences who are not tax specialists, here is a summary of the FY2024 Tax Reform Proposals in Japan issued on Dec 14, 2024. It shows planned revisions to tax laws administered by the LDP and the Kōmeitō.
This portion of the policy is for changes to the law in 2024.

Taxes affect people’s behavior. By understanding the schedule of changes, you can know whether it is better to hurry now, wait, or stay the same.

In summarizing, we will consider the following categories

• For Individuals
• For companies
• Others (e.g., duty-free stores)

I will try to give you a rough idea of the flow as much as possible.

As an overall policy

The creation policy states that “the highest priority is to achieve wage increases that exceed price increases in response to the high prices experienced in the accustomed deflationary society.

Under the above, it is planned to reduce income tax and individual inhabitant tax by a certain amount and establish a tax system to promote wage increases to increase disposable income.

In addition, the defense tax hike that has been talked about for FY2022 will be postponed. The tax on heated cigarettes will be raised to JPY3 per cigarette to finance the tax for the time being. The tobacco tax hike is being implemented in this way because it is unlikely to be opposed in the health purpose field.

Let’s take a look at the details.

For individuals

Flat-rate tax cuts

The big one for individuals is the flat-rate tax cut.
A reduction of 30,000 yen in income tax and 10,000 yen in resident tax for the fiscal year 2024 per taxpayer and each dependent is planned.

The adjustment will be made by subtracting 30,000 yen from the withholding tax collections after June 2024. If the amount cannot be deducted, the adjustment will be repeated for the following withholding tax collection.

The withholding tax form is one of the things that salaried workers do not see at all.
Even if they get a tax cut, I feel that their bank account will end up with a slight increase without feeling the benefit of it.

If the sole proprietor collects income tax in July, ¥30,000 will be deducted from that income tax payment. You can deduct more from the November payment if there are any remaining deductions.

Childcare Support

Expansion of Mortgage Loans

The maximum borrowing limit for newly constructed certified housing will be increased to 5 million yen and 10 million yen for ZEH compliance. The results are as follows.

The extent to which this is effective is questionable. To confirm, materials must be raised and inspections conducted to avoid loss, but expenditures will increase.

Note that this rate will change if you are raising children.

In addition, the loan deduction is applicable even if the floor area of the new construction is 40m2 or more.
This is based on the judgment that there is a need for smaller homes if they are located near train stations.

Although 40m2 for new construction seems to be a demand limited to urban areas.

Remodeling Tax Credit

A tax credit of up to JPY2.5 million, 10% of which will be deductible, will be provided to families with children who remodel their homes to include a kitchen facing each other.

Deduction for life insurance premiums

If a person has dependents under 23, JPY20,000 will be added to the current JPY40,000 deduction for new life insurance premiums.
However, for some reason, the total deduction limit for general life insurance premiums, nursing care medical insurance premiums, and individual annuity premiums will remain unchanged from JPY120,000.

It does not seem to be easy to use.

Revision of deduction for dependents

Child allowance will be provided to high school students as well.

In conjunction with this change, the deduction for dependents will be reduced.
The deduction for national and local taxes, which used to be JPY380,000 and JPY330,000, will be reduced to JPY250,000 and JPY120,000, respectively.

Even if a child allowance is paid, it will eventually be written off when adjusted in this way.
If double taxation is not reasonable, why was the child allowance expanded in the first place?

The funds’ source may differ, but it would be difficult for the general public to understand.

Exchange of cryptocurrency information

Given the tax leakage of cryptocurrencies, the automatic linkage will be made with various overseas locations by tax treaties—transactions related to non-residents’ crypto assets must be reported to domestic platforms.

I’m concerned about the perspective of undeclared taxation.

Collection of consumption tax to platformers

There are cases where services are provided in Japan via overseas platforms.
In this case, there may be omissions to collect consumption tax.

The Government plans to make it mandatory for platforms to collect this consumption tax to ensure fairness in taxation.

For Corporations

Enhancement of the taxation system to promote higher wages

Create a tax incentive bracket for large companies that have increased their total payroll by 7% or more from the previous year. Expand preferential treatment for companies active in childcare support, etc., and deduct up to 35% of salary increases from corporate taxes.

For small and medium-sized companies, since 60% of corporations are in the red, we plan to use carry-over deductions to address this issue.

Preferential treatment for mergers and business transfers

In the case of multiple mergers and acquisitions, the reserve ratio will be increased from 70% to 100%, and the deferral period will be extended from 5 to 10 years to enhance employment security.

AI Investment Related

A 30% income tax deduction will be provided for patents and copyrights related to AIbn and AI software that companies themselves have conducted R&D in Japan.

This will result in a 7% corporate tax benefit, bringing the corporate tax rate down to approximately 20%. This is called the “innovation box taxation.”

Exit Strategies for Startups

To facilitate business development, the annual exercise price limit of the stock option tax system will be raised to JPY36 million, which is three times the current limit.

Revision of high-level human resources requirements

The requirements for high-level human resources in foreign nationals’ residence status will be reviewed.

For example, the following are among those that have been added. There are four other new ones.

Professor and Associate Professor

Important employee of a listed company (reduced from 3 years to 1 year)

It will be easier to obtain residency status.

Other special note

Forest Environment Tax and Forest Environment Gift Tax

From 2024, the tax will be levied from the perspective of global warming prevention, etc. Specifically, the “forest environment tax” will be added to the individual inhabitant tax as a national tax of JPY1,000 per person per year starting in FY2024.

In addition, the “Forest Environment Concession Tax” is assigned to municipalities and prefectures on a pro-rata basis based on objective criteria such as the area of privately owned planted forests, the number of forestry workers, and the population, starting in FY 2019, as a financial resource for forest maintenance by municipalities.

Utilization of tax

To measure the digitization of public administration, tax payments through eLTAX and MyNaportal will be encouraged to be promoted.

Revision of Tax-Free Shops

There have been stories of tourists illegally reselling goods purchased duty-free in Japan instead of taking them out of the country.
In response, the consumption tax that was previously exempted at the time of purchase is scheduled to be changed to a refund at the time of departure from 2025 onward.

2024, no change will be made, but if fraud is discovered, the tax-exempt stores will not be allowed to deduct the tax due.