The Japanese government is considering an income tax cut of 40,000 yen ($268) per person and cash handouts of 70,000 yen to low-income households as part of temporary 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 the income tax cut.
Legislation will be required to change the current tax system, making it likely that Japanese households, already reeling from the rising costs of living, will start feeling the benefits around next summer at the earliest.
The cash payouts could begin by the end of the current fiscal year ending March, the sources said.
Higher fuel and raw material import costs have driven resource-scarce Japan's inflation rate higher, with its impact exacerbated 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, are expected to decide how long the tax cut should last. Yoichi Miyazawa, who heads the LDP's tax reform panel, has said one year would be "common sense."
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 specific deduction rate, though it would benefit high-income earners more because tax burdens increase according to income levels.
The envisaged package would 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 household utility bills from the end of the year to next April.
