The Japan Association of New Economy (JANE; Location: Minato-ku, Tokyo; Representative Director: Mickey Mikitani) issues the following statement from its representative director regarding recent reports that, in the ruling and opposition parties’ agreement on November 5 concerning the abolition of the former provisional gasoline tax, a review of taxation on high-income earners, specifically the strengthening of financial income taxation, was included as a substitute revenue source for the tax reduction, with a conclusion expected by the end of this year.

Although JANE previously expressed opposition to the proposed tax increase on high-income earners under the “Adjustment of the Tax Burden on Extremely High Levels of Income” in the 2023 Tax Reform, we hereby once again express our clear opposition to the strengthening of financial income taxation, which is being presented as a measure to increase taxes on the wealthy.

JANE is a business association centered on entrepreneurs. Guided by the principle of “Give more Authority to Private Sector,” JANE advocates that the government refrain from excessive market intervention, fundamentally reduce the tax burden, revitalize the Japanese economy and increase tax revenues through economic growth. A fundamental reduction in the tax burden is essential to expanding domestic investment and promoting economic vitality. Without such a reduction, significant domestic investment cannot be achieved. For these reasons, we strongly oppose the strengthening of financial income taxation presented as a measure to increase taxes on the wealthy and call for the abolition of the minimum tax introduced under the 2023 Tax Reform, which applies to income earned this year.

1.Adverse Impact on the Startup Ecosystem: A Negative Message That Success Leads to Higher Taxation

Strengthening financial income taxation could result in additional taxes being imposed on company owners when selling shares through an IPO or transferring their own shares in an M&A transaction. For those considering starting a business or striving to further grow their startups in Japan, this effectively serves as a warning that success will lead to higher taxation, sending an extremely negative message. Such a policy runs counter to the growth strategy set forth by the Takaichi administration, which emphasizes the creation of a startup ecosystem capable of competing with the world’s top ecosystems. It would also undermine the government’s ongoing “Five-Year Plan for Startup Development.” At a time when Japan needs to foster an environment where mega-ventures can emerge and the Japanese Dream can be realized, policies that go against this goal should not be implemented.

2.Accelerated Outflow of Talent Overseas — Hindering the Retention of Skilled Professionals and the Expansion of Domestic Investment

The number of countries that do not impose capital gains taxes is increasing.
If Japan were to impose unreasonable taxes on successful individuals, it would accelerate the outflow of its top talent abroad and make it more difficult to attract and retain skilled professionals domestically and internationally. If Japan becomes unattractive to entrepreneurs, investors and risk-taking capital, expanding domestic investment will be difficult. The Takaichi administration aims to strengthen Japan’s supply structure and create a virtuous cycle in which global capital flows into Japan by building an economy trusted by international investors. The administration also upholds the principle of “fiscal policy driven by economic growth” or “responsible proactive fiscal policy,” under which tax revenues can increase without raising tax rates. The strengthening of financial income taxation, however, runs counter to these policy directions.

3.Questions and Concerns Regarding the Underlying Assumptions

There are questions and concerns regarding the assumptions cited in the consideration of strengthening financial income taxation. Careful data collection, analysis and deliberate discussions are required to determine whether the problem identification and proposed solutions are appropriate. A framework that allows for easy tax increases by arbitrarily adjusting target tax rates or income thresholds without such analysis should not be established. Specific points include:

• Taxation on financial income, such as dividends and capital gains, is imposed after the payment of corporate tax and therefore constitutes a form of double taxation that reduces capital efficiency.

• The graph presented by the Ministry of Finance as an illustration of the 100-million-yen barrier is based solely on self-filed taxpayers and does not reflect the overall tax burden, excluding those taxed at source.

• The current discussion assumes continuation of Japan’s already high-top marginal income tax rate by international standards. If this top rate itself contributes to a perceived barrier, consideration should be given to lowering the top marginal income tax rate.