Wage Increase Tax Incentive to Shift to Average Salary Criterion, METI Seeks Support for Local SMEs

In its tax reform requests for FY2027, the Ministry of Economy, Trade and Industry proposed revising the requirements for the wage increase promotion tax incentive, which applies to companies that have raised wages. Under the proposed changes, companies whose average salary per employee has increased by a certain amount, rather than companies whose total payroll has risen, would be eligible for support. The aim is to provide more generous wage increase support, particularly for local small and medium-sized enterprises.

Under the current system, companies may be unable to receive tax benefits if their total payroll declines because of a reduction in the number of employees, even if they have raised wages. By using average salary as the criterion, the government intends to recognize companies that improve employee compensation while reducing their workforce. The application period for the wage increase promotion tax incentive for SMEs currently expires at the end of March 2027, and the government has also indicated that it plans to extend the period by 3 years.

The requests also include the establishment of a new tax incentive, the Business Portfolio Transformation and Strengthening Promotion Tax Incentive, which would reduce taxation on gains when companies sell businesses. The proposed framework would defer taxation on gains from asset sales for a certain period. The aim is to make it easier for companies to direct the proceeds toward growth investment and M&A.

The government also plans to include expanded tax measures related to child-rearing support among the items to be adjusted. Overall, the proposed measures are designed to promote sustained wage increases and business restructuring at the same time.