After more than a year in power, Prime Minister Fumio Kishida has shown a cautious willingness to reform tax policy, but there is still a lot to do. He inherited a stagnant economy wracked by rising inflation and a mountain of government debt.
The Kishida government has pushed ahead with tax incentives for research and development, while it takes advantage of a windfall of tax revenue. This allowed Kishida to announce a ¥29 trillion ($197 billion) stimulus package in October to subsidise energy costs and help prop up the yen.
Going into 2023, the Japanese government still needs to raise more tax revenue from somewhere and it has very few options. Kishida has hinted that his government may have to raise corporate tax or capital gains tax.
The Kishida government surprised outsiders by supporting a carbon tax of $56 per tonne of CO2 emissions on shipping in May. He also shelved a national carbon tax in November over concerns it would worsen the energy crisis.
Meanwhile, the Kishida government has clashed with the US over tax credits for electric vehicle production. Japanese car manufacturers fear the US tax credits will put them at a disadvantage in the American market.
Kishida may have promised to restore dynamism to the Japanese economy, but 2023 may be the year when he has to deliver significant tax changes.
