METI Requests a Comprehensive Review of Taxation for Sole Proprietors and Small Enterprises (Not Yet Decided)Asking to Rethink the Tax Balance Between Individual Business Owners and Companies
For the FY2027 (Reiwa 9) tax reform, the Ministry of Economy, Trade and Industry (METI) has requested a comprehensive study across income tax and corporate tax, taking into account challenges of small businesses including sole proprietors such as business succession and owner pay, the tax balance among sole proprietors, family companies and salaried workers, and better bookkeeping including wider use of blue return filing. It is a request to study, not a concrete reform proposal.
- 1. Sort out issuesChallenges of small businesses such as succession and owner pay
- 2. Check the balanceTaxation of sole proprietors, family companies and salaried workers
- 3. Better bookkeepingIncluding wider blue return filing
- 4. Study overallReview deductions as a whole, across income tax and corporate tax
Key points
- Subject of the study: the balance of taxation between individuals and incorporated businesses, with reference to foreign systems
- To be studied, including an overall review of "deductions by type of income" such as the employment income deduction, and of "personal deductions"
- To proceed while improving bookkeeping levels, including wider use of blue return filing with double-entry bookkeeping
- Background cited: corporations can deduct owner pay under certain conditions and the employment income deduction rises with income, whereas the blue return special deduction for individuals is a fixed amount regardless of income, which is said not to reflect the "labor" of sole proprietors
What to do in practice
- Watch whether deduction reform is discussed in the Tax Commission and the coming tax reform outline
- Check whether your blue return filing and bookkeeping are in good order
Someone who runs a shop alone and someone who set up a company for the same work have slightly different ways of calculating tax. METI has asked for a study of that gap. No concrete new rule has been decided yet.
Points
- Not decided yet. It is only a request to "please think about it"
- They want to rethink the tax balance among shop owners, company founders and employees
- They also care about getting more people to keep proper account books
What the words mean
- Blue return filing
- A way of filing where you keep proper books and get a tax benefit in return
- Deduction
- An amount subtracted from income when working out tax
- Ministry of Economy, Trade and Industry (METI): Ministry of Internal Affairs and Communications: FY2027 (Reiwa 9) local tax reform request (METI), study of the tax system for small enterprises and the like (PDF)
- Ministry of Economy, Trade and Industry (METI): Ministry of Internal Affairs and Communications: list of FY2027 (Reiwa 9) tax reform requests (METI)
This article previews items that are still under consideration or only requested. Whether they will be adopted, and whether the content or timing will change, is not final. Please check the official source again once a decision is made.
This article summarizes and explains materials published by government agencies and is not advice on any individual case. Rules can change, so for actual procedures and decisions always check the latest original materials and consult professionals such as tax accountants or labor and social security attorneys. English, Simplified Chinese and Traditional Chinese versions are translations prepared from the Japanese articles for convenience. If anything differs, the Japanese text and the original source take precedence.