Prime Minister Fumio Kishida on Thursday asked senior ruling coalition lawmakers to work out the specifics of a tax cut plan that will go into an economic package to ease the burden on households hit by inflation.
The government is considering a tax cut of 40,000 yen ($266) per person -- 30,000 yen for income tax and 10,000 yen for residence tax. Low-income households who are exempt from tax payments are expected to receive 70,000 yen in cash.
Kishida's Cabinet is expected to formalize the economic package on Nov. 2, featuring subsidies to lower energy costs and other steps allowing the economy to ride out the current squeeze.
The Liberal Democratic Party and its junior coalition partner Komeito will work out details toward the end of the year when the government draws up a tax reform plan for fiscal 2024 from April.
Legislative work will be needed to implement the envisaged tax cuts, meaning that Japanese households will start feeling the effects around June. The cash payouts are expected to begin much earlier, probably by the year-end, according to sources familiar with the matter.
The tax cut program will also apply to dependents of a taxpayer, such as spouses and children. If a taxpayer has two dependents, the family's tax burdens will be cut by 120,000 yen in total.
Still, wealthy taxpayers will likely be excluded, the sources said. The government may also increase payouts for child-rearing families.
Japan's inflation has shown signs of easing in recent months as the impact of surging import costs for energy and raw materials wanes. But rising prices of everyday goods are already weighing on household sentiment, despite private consumption supported by pent-up demand after the removal this spring of antivirus curbs.
Kishida is scrambling to reverse a fall in public support for his Cabinet, partly blamed for the cost-of-living crisis.
Critics question whether tax cuts will be effective as a quick inflation-relief measure at a time when wage growth has not kept pace with inflation. Opposition lawmakers, meanwhile, have criticized the government for doing too little, too late.
Kishida has ruled out cutting consumption tax to ease the pain of inflation felt by households, currently set at 10 percent for most items, excluding food.
As Japan's income tax revenue has hit a record high for the past three years, Kishida said he wants to return part of the increase to the Japanese people.
