The government is considering cutting income tax burdens by 40,000 yen ($268) a year while giving 70,000 yen to low-income and elderly households as part of inflation-relief measures, sources familiar with the plan said Tuesday.
Prime Minister Fumio Kishida, who places priority on wealth redistribution, has instructed ruling coalition executives to work out details of the economic package that he hopes to formalize on Nov. 2, including how to realize income tax cuts.
Legislation will be required to change the current tax system, making it likely that Japanese households, already reeling in the rising cost of living, will start feeling the benefits around next summer at the earliest.
Higher import costs of fuel and raw materials have driven resource-scarce Japan's inflation rate higher, with its impact magnified by a weaker yen.
Kishida has vowed to put the economy before anything else in his policy speech as an extraordinary Diet session got under way. His increased focus on the economy comes as he is scrambling to stem a downward spiral in public support, partly seen in the mixed results of parliamentary by-elections on Sunday.
To return part of an increase in tax revenue to the Japanese people, 40,000 yen has emerged as an option within the government, according to the sources.
Japan has seen record-high tax revenue for the past three years through fiscal 2022. Of the total, income tax revenue grew by around 3 trillion yen from fiscal 2020.
The ruling coalition of the Liberal Democratic Party and its junior coalition partner Komeito began intraparty discussions on Tuesday to draw up the economic package.
Komeito chief Natsuo Yamaguchi has said over 20,000 yen could be one target, if the government decides to deduct a fixed amount from tax payments.
Another option to reduce income tax is to set a certain deduction rate, though it will benefit high-income earners more because tax burdens increase according to income levels.
The envisaged package will be intended to cushion the negative impact of rising prices on households and put the economy on a longer-term growth path.
The government is considering extending existing subsidies to lower gasoline prices and reduce utility bills for households beyond the end of the year to next April.
