It's that time of the year again where the political party (or rather the political alliance) in power posts their plans for tax reform in the following year. I made a post summarizing last year's here. I made sure to include "proposed" in the title this year to emphasize that this outlines the changes the party in power would like to make, but whether legislation passed next year at the end of March matches this outline or not remains to be seen. Various details of last year's plan did not end up exactly as outlined. In years prior, when the LDP had a more solid majority, there was little chance of legislation not passing as outlined in the year-end proposal. Now, compromise may be necessary to get the votes to pass legislation, as seen this year.

The Wall

Raising the level of income at which income tax starts to be owed (often referred to in media as a "wall") was a key piece of the legislative changes proposed last year. This year continues that with a proposal to raise it further.

• Salary-earners will be able to earn up to 1.78 million yen without owing tax (up from the current 1.6 million yen "wall")
• No change to social insurance (社会保険), which may still apply to people even if they don't owe tax on their salary.

NISA

• Expand eligible funds in the tsumitate portion.
• Remove the age restriction preventing minors from opening NISA, but limit minors to the tsumitate portion, focusing on long-term investment.
  • Annual limit of 600,000 yen investment
  • Total investment limit of 6 million yen until the age of 18
  • Cannot withdraw funds if under the age of 12

Furusato Nozei

• New max limit on the furusato nozei tax credit will apply to individuals making the equivalent of 100 million yen or more employment income
• The rule that municipalities must spend 50% or less in total (including cost of the gift, portal sites' fee, delivery fee, etc.) of the donation will be lowered over time to 40% or less

They note that portal site fees are taking 13% of donations.

Minimum Tax on The Rich

This tax system started in 2025 but changes are being proposed to expand its effectiveness. It was made to address the "1 oku wall" problem (not to be confused with the above "wall" where tax starts to be owed by salary-earners). For those not familiar, refer to the graph on slide 38 in this PDF (page 10 of 11 in the PDF), which shows the effective tax rate of taxpayers rises up to 1 oku (100 million) yen and then begins to fall, as taxpayers at that level have more income from sources taxed at a relatively low flat rate (e.g. 15% income tax).

• People with total net income (合計所得金額) of more than 165 million yen will be subject to the minimum tax (down from the current 330 million yen)
• The minimum effective tax rate will be raised from 22.5% to 30%

These changes are proposed to take effect on income from 2027.

Inheritance Tax

One way in which wealthy people try to reduce the inheritance tax their heirs might pay is to buy real estate to pass on rather than financial instruments like cash or stocks because real estate is evaluated for inheritance tax purposes lower than the market value. Changes are proposed to limit the effectiveness of this, particularly when done near death.

• Change the evaluation of investment real estate bought within 5 years of inheritance to consider the purchase price rather than the price derived from 路線価

Cryptocurrency Taxation

• Specific cryptocurrencies transacted at registered cryptocurrency brokers will be taxed separately at a flat rate, similar to securities (15% income tax, 5% residence tax).
• Registered brokers must report cryptocurrency transactions of Japan residents to the NTA.
• Losses from specific cryptocurrencies transacted at registered cryptocurrency brokers can be carried forward for up to 3 years, similar to securities.
• These rules will apply to transactions from January 1 in the year following the passing of the reform.

Cryptocurrency taxation reform in Japan has been long-awaited and there has been much speculation about the details. I will again stress this is a proposal, but it is a concrete proposal by the majority political alliance. Of note, the new rules are proposed to only apply to an approved list of cryptocurrencies. The transaction of a cryptocurrency on that list must be done via a registered cryptocurrency broker in order to receive the preferential tax treatment.

There are more smaller changes included in the proposal, but I hope I've covered the highlights. Feel free to discuss anything of interest in the outline. I may update later with additional details as I have time.