Factbox-Japan tax reform to target low-emission cars, shift to investment

People make their way at Ameyoko shopping district in Tokyo

TOKYO (Reuters) - Japan will extend tax breaks on low-emission cars and seek to shift its massive household savings into investment in the government's annual tax code revision approved by the ruling coalition on Friday.

The government will also raise corporate, income and tobacco taxes to pay for a scheduled doubling of Japan's defence spending to 2% of gross domestic product (GDP) by 2027 - a response to an increasingly assertive China and North Korea's missile launches.

Below are key changes under the revised tax code, which will take effect in the next fiscal year beginning in April 2023, upon approval by parliament.


Japan will extend tax breaks on low-emission cars past the end of 2023, while increasing the required level of emissions reduction for eligible vehicles in several stages from 2024. The revision, to remain in place until April 2026, will cover half of all new automobiles.

The government will also exclude gasoline-powered cars beginning in 2025 from tax cuts that were granted to the automobile sector to help it overcome supply constraints.


Under his flagship "new capitalism" initiative aimed at redistributing income, Prime Minister Fumio Kishida has sought to shift Japan's 2 quadrillion yen ($14.52 trillion) in household assets away from savings and into investment.

As part of this initiative, the government will make permanent a programme that offers tax breaks for households' stock investments. Specifically, it will triple the limit on investments eligible for tax breaks from 2024.


The capital gains tax rate is uniform across income brackets in Japan, unlike the income tax, which is progressive.

As part of a symbolic effort to address income disparities, the government in 2025 will apply an additional tax to 200 to 300 individuals who earn an annual income of more than 3 billion yen from investments in stocks and real estate.


Kishida's administration has stressed the need to nurture more start-ups that could give a boost to Japan's anaemic economic growth.

The government will expand preferential tax breaks for retail investors when they buy and sell stocks in start-up firms.

Profits from the sale of start-up shares will be exempt from income tax if they are reinvested in other venture businesses.

($1 = 137.7800 yen)

(Reporting by Tetsushi Kajimoto; Editing by Edmund Klamann and Jacqueline Wong)