© Reuters. Japanese flags fly in front of buildings in Tokyo, Japan, February 22, 2016. REUTERS/Toru Hanai/File
TOKYO (Reuters) – Japan should avoid rushing to raise the income tax because doing so could send the wrong message to markets as Japan encourages savings, a government official said on Sunday.
“Strengthening taxes can send the wrong signal that goes against our goal of increasing income,” Chief Cabinet Secretary Seiji Kihara said in an FNN radio program, referring to the income tax.
The tax has been a hot topic since Prime Minister Fumio Kishida took office last year promising to overhaul the unfair tax system that favors the wealthy with high incomes.
In Japan, the gap between income tax and capital gains tax creates what is known as the 100 million yen wall, where the effective income tax rate begins to fall.
Kihara’s comments come as the tax council of Kishida’s Liberal Democratic Party (LDP) discusses the issue as part of the annual tax review.
Separately, Kihara said the government is committed to strengthening security even though its funding remains questionable, especially after the five-year plan expires in 2027.
“We have to do what we have to do regardless of whether there is money or not,” Kihara said. “The question is how we can get a stable income beyond 2027. First we have to deal with the change in income, and if it is not enough we can ask everyone to share deeply.”
Last month, Kishida told his cabinet to increase military spending to 2% of gross domestic product within the next five years in the face of regional threats such as a rising China and an unpredictable North Korea.