Japan's government has proposed increasing the income tax threshold from 1.03 million yen to 1.23 million yen as part of tax reform discussions. The ruling Liberal Democratic Party (LDP) and Komeito are currently negotiating with the Constitutional Democratic Party, which advocates for a higher threshold of 1.78 million yen.
The term 'income tax wall' refers to the issue where part-time workers limit their working hours to avoid exceeding certain income levels that trigger tax and social insurance burdens. The current thresholds include 1 million yen for local taxes, 1.03 million yen for income tax, and 1.06 million yen and 1.3 million yen for social insurance contributions.
As of now, discussions among the three parties have yet to conclude, and the LDP's tax reform proposal includes a commitment to raise the threshold to 1.78 million yen starting next year.
Furthermore, the government has decided to increase the income threshold for tax deductions for parents of children aged 19 to 22 from 1.03 million yen to 1.5 million yen. This change aims to alleviate the tax burden on families.
In relation to social insurance, the Ministry of Health, Labour and Welfare has proposed a pension reform plan that would eliminate the wage requirement of 88,000 yen per month (equivalent to 1.06 million yen annually) for part-time workers to join the employee pension scheme.
These changes come amid inflation concerns, as rising incomes can lead to higher tax rates. The government is looking to adjust tax thresholds in line with inflation rates, similar to practices in other developed countries.