Revised bills including special measures for the incremental amount of the basic deduction are now under deliberation in the House of Councillors.
Status of tax reform proposals
The "Outline of the 2025 Tax Reform Proposals," published in December 2024, stated that the tax-free threshold of income tax would be raised from JPY1.03 million to JPY1.23 million by increasing the basic deduction and employment income deduction by JPY100,000 each. The ruling coalition also agreed with the Democratic Party For the People (DPFP) to aim for a JPY1.78 million threshold, with ongoing discussions on implementation. Read TaxNewsFlash
The ruling coalition of Japan, consisting of the Liberal Democratic Party and Komeito, submitted tax reform bills to the Diet on February 4, 2025. The proposed reforms include an increase in the basic deduction and employment income deduction to adjust the tax burden during inflation and address working hours adjustments.
On February 28, 2025, the ruling coalition submitted to the Diet revised bills, including special measures for the incremental amount of the basic deduction. The House of Representatives passed these bills on March 4, 2025, and they are now under deliberation in the House of Councillors.
Outline of additional tax reform bills
The additional reform bills propose increasing the basic deduction for individuals with a total income of JPY23.5 million or less from JPY480,000 to JPY580,000. This increase would be applied from 2025 for national income tax purposes. The tax-free threshold would be raised to JPY1.6 million, with the basic deduction set at JPY950,000 and the employment income deduction at JPY650,000.
Special measures for 2025 and 2026 would further reduce the tax burden on low- and middle-income earners. For individuals with a total income of JPY6.55 million or less, the basic deduction would include an incremental amount based on total income, ranging from JPY370,000 to JPY50,000.
From 2027 onwards, the special measures for the incremental amount of the basic deduction would be maintained, with the basic deduction set at JPY950,000 for individuals with a total income of JPY1.32 million or less.
The amendments would apply to national income tax from 2025 and to withholding tax on salaries and public pensions from January 1, 2026. For salaried employees, the amendments would be applicable in the year-end adjustment for 2025.
The reforms do not include an increase in the basic deduction for inhabitant tax purposes, which will remain at JPY430,000 for individuals with a total income of JPY24 million or less.
Read a March 2025 report prepared by the KPMG member firm in Japan