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Japan to hike taxes on high earners, bringing in extra $890m

Income tax to rise for 3m workers, plus some pensioners, in 2020

About 5% of Japan's salaried employees, or 3 million people, would pay higher income taxes under a proposal likely to take effect in 2020.

TOKYO -- Japan is poised to raise an additional 100 billion yen ($890 million) in revenue annually from tax proposals that would slash deductions for high-paid employees but help freelancers and households caring for children or the elderly.

The plan devised by the ruling Liberal Democratic Party's tax panel was accepted in principle Wednesday by the prime minister's office and junior coalition partner Komeito. It reduces tax breaks for those making over 8 million yen while expanding the basic deduction for virtually all earners.

The changes would take effect starting in January 2020. Japan would increase revenue through a revision in income tax rules for the first time since fiscal 2014, when the maximum earned-income deduction was reduced.

The current proposal shrinks the maximum earned-income deduction from 2.2 million yen for those making over 10 million yen annually to 1.9 million yen for salaries topping 8 million yen.

Some 3 million people, or 5% of all salaried workers including public employees, would pay more income tax as a result. Employees with salaries of 8.5 million yen would pay an additional 15,000 yen, while those earning 15 million yen lose an extra 86,000 yen, according to Ministry of Finance estimates.

But that tax burden will not change for employees earning less than 8 million yen. Households with children up to 22 years old or those with elderly or disabled family members in their care will be exempted from the tax hike.

In contrast, the plan raises the basic deduction for all taxpayers from 380,000 yen to 480,000 yen to encourage diverse work styles, a shift that likely will reduce taxes for freelancers, contractors and other nonsalaried workers. However, the basic deduction will be reduced for high earners topping 24 million yen and eliminated for the roughly 150,000 people receiving over 25 million yen.

The exemption for public pension recipients will be decreased across the board. Seniors whose annual income surpasses 10 million yen from pensions alone will have their exemptions capped at 1.95 million yen. About 3,000 people are expected to exceed that limit, such as those receiving retirement money as a pension.

Seniors with high incomes outside of their pensions will pay more tax on those earnings as well. The exemption for seniors with incomes between 10 million yen and 20 million yen will fall by 100,000 yen. Those making more money will have their exemption cut by double that amount. The government expects the reduction to impact about 200,000 people.


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