Japan incentivises salary hikes with tax deduction

The authorities are also working on the tax deduction rate for large companies, which will be featured in the ruling party’s tax system reform proposals for fiscal 2022, which starts in April, to be drawn up by Friday.

Under the new system, the tax deduction rate will be raised to 30% for big companies and 40% for smaller ones if they raise wages.

The current system allows large companies to deduct up to 20% of employee wages from their corporate taxes, while smaller businesses are given a deduction of up to 25% if they meet a set of conditions including a certain degree of wage increase.

Tax deductions for companies raising wages are part of this year’s annual tax reform discussions and one of the main policies of prime minister Fumio Kishida, who aims to ensure a virtuous cycle of economic growth and wealth redistribution.

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The coalition government is drastically revising the tax reduction system which was established in fiscal 2013 under the government of then prime minister Shinzo Abe, in a bid to shore up the wages of all workers, according to Jiji Press.