The proposals set out planned changes to income tax, capital investment incentives, high-income taxation, digital commerce rules and consumption tax measures for FY2026.
Japan’s Ministry of Finance (MoF) has released the highlights of the tax reform proposals for the fiscal year 2026.
The key elements of the proposals are outlined below:
（１）Income tax reform to address rising prices
- Introduce the scheme, based on the FY2025 Tax Reform Act, to raise the basic exemptions and the minimum guaranteed amount of the deduction for employment income every 2 years, in accordance with the increase in the CPI (all items).
- Increase the basic exemptions for broad taxpayers (affecting approximately 80% of employment), in terms of supporting low-income and middle-income earners facing rising prices; set the minimum taxable income tax threshold to JPY 1.78 million.
（２）Tax measures for promoting strong economy (Largest-ever tax incentives for capital investment)
- Introduce the largest-ever tax incentive for large-scale and high value-added capital investment, including immediate depreciation and 7% tax credit (4% for buildings, etc.), covering all industries.
- Allow carry-forward (up to 3 years) of tax credit for companies with government-approved plans for managing a volatile business environment.
(Review of special tax measures and improvement of policy effectiveness）
- (1) R&D tax credit: Create a “strategic technology” category (e.g. AI and quantum) with a 40% tax credit; reform incentives with strict requirements to further encourage enterprises’ R&D and gradually restrict outsourcing of research overseas (excluding overseas clinical trials).
- (2) Tax credit for promoting wage increases: Abolish for large enterprises, while extending for medium-sized enterprises with stricter requirements (to be repealed in FY2027 tax reform), and maintain for SMEs (to be reviewed in FY2027 tax reform).
- (3) Special tax credit for housing loan: Expand support for purchasing second-hand housing (raising borrowing limits, providing additional credits for households with children, and relaxing floor size requirements).
- (4) Disclosure of companies’ names utilising special tax measures: Discuss possible steps while taking into account the administrative burden of businesses, expecting to reach a conclusion in the FY2027 tax reform.
Further promotion of Japan as a leading asset management centre）
- Unlock the basic investment plan of NISA for ages 0–17 (annual limit: JPY 600,000; total limit: JPY 6 million) to support savings and investments for children.
（３）Equity and fairness in tax burden （Review of burden on extremely high income earners
- Raise applicable tax rate (22.5% → 30%) and lower deduction amount (JPY 330 million→ JPY 165 million), expanding target from approximately 200 taxpayers (income around JPY 3 billion) to approximately 2,000 taxpayers (income around JPY 600 million). （Level playing field among domestic and foreign businesses on electronic commerce)
- Review of the De Minimis Rule of consumption tax on low-value shipments
- Introduction of Platform Taxation on electronic commerce
（４）Review of vehicle taxes (motor vehicle tonnage tax)
- Raise the fuel efficiency standards for the Eco-Car Tax Break to promote investment in fuel-efficiency improvements.
- Introduce an additional charge in the tonnage tax on EVs for private use, which are currently not subject to fuel taxes, considering damage on roads (to be legislated in FY2027 tax reform).
（５）Others (Transitional measures for the invoice system on consumption tax)
- Allow self-employed individuals to pay 30% of their output tax for 2027 and 2028, regardless of the amount of input tax, even after the end of the current special accommodation of 20%.
- Extend the final deadline of special input tax credit on purchases from tax-exempt suppliers for 2 years and ease the speed and magnitude of gradual reduction of the creditable rate; lower the annual cap of purchases eligible for this treatment (from JPY 1 billion to JPY 100 million per tax-exempt business supplier) to prevent tax avoidance.
