Tax Planning
Tax Planning in Japan: Leveraging the New Base Deduction & Eliminating Environmental Vehicle Levies
With recent tax reforms introducing enhanced base deductions and abolishing environmental performance levies, individuals and businesses can restructure finances to enjoy significant savings.
By NomadicTax Research Team • 5-8 min read • September 9, 2026
## Overview of Recent Changes
Japan’s **令和8年度（FY2026）税制改正大綱** introduced several major reforms affecting tax planning, particularly in the areas of base deductions and environmental taxation. Key reforms include:
- **Higher basic deduction and salary‐income deduction floor**: For individuals with aggregate income up to ¥23,500,000, the basic deduction is increased by ¥40,000, and the minimum salary‐income deduction is raised from ¥650,000 to ¥690,000. ([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_gaiyou.htm?utm_source=openai))
- **Abolition of environmental performance levies**: The environmental performance tax (“環境性能割”) in automobile taxes is set to be phased out as part of the overall gas/diesel and vehicle tax restructuring. ([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_gaiyou.htm?utm_source=openai))
- **Cancellation of temporary diesel fuel tax rates (“軽油引取税”）for the time being**: Reduced rates for a certain period were abolished from April 1 of this year. ([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_gaiyou.htm?utm_source=openai))
## Planning Tactics for Individuals
To maximize benefit under the new deductions regime:
- **Structure income carefully**: Those with aggregate incomes near or below ¥23.5 million should ensure income sources are taxed appropriately to benefit from the new higher basic deductions. Review timing of bonuses or dividends.
- **Update payroll settings**: Companies should adjust payroll software to incorporate minimum salary deductions of ¥690,000; otherwise employees may be over‐withheld at year‐end.
- **Assess vehicle ownership costs**: Since environmental levies are abolished, ownership of higher‐emissions vehicles may now be less costly. However, upkeep and registration costs may still reflect fuel efficiency or other tax rules—analysis required case by case.
## Planning for Businesses & Investors
- **Capital investment timing**: Investments in vehicles or equipment subject to environmental taxation may see better returns or lower upfront costs given removal of certain levies. Accelerate purchases if prior levies still apply.
- **Real estate transactions**: With raised exemption thresholds (免税点) for property‐acquisition and fixed‐asset taxes, small purchases that previously triggered tax may now fall below thresholds. Businesses should analyze acquisition costs to plan timing and scale. ([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_07.htm?utm_source=openai))
## Practical Example
Suppose Mr. A earns ¥22 million through a salary. Before, his basic deduction was lower—now increased, reducing his taxable income. With ¥40,000 more deduction and the guaranteed ¥690,000 salary deduction, the net taxable base drops, saving possibly tens of thousands in annual tax. Also, if his business just added a company vehicle subject to environmental performance levy last year, that purchase may now avoid those levies, yielding savings on the registration or taxes due.
## Action Steps
- Review payroll and withholding tables this quarter.
- Consult with financial advisors before buying “tax‐sensitive” assets like vehicles or real estate.
- Keep an eye on your aggregate income to ensure eligibility for enhanced deductions.
- If expecting property acquisitions, check whether purchase price falls under new exemption thresholds.
## Risks & Considerations
- Legislation sometimes includes **transition dates**; for example, environmental levies abolition applies after certain dates—some contracts pre‐dating changes may still carry old rules. ([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_gaiyou.htm?utm_source=openai))
- Dependent on city-/prefecture-level ordinances for local taxes: exemption thresholds, deductions at local level may differ.
- Compliance timing is important—using old forms beyond change dates may lead to delays or rejections.
Harnessing these reforms can lead to meaningful savings across individual and business contexts—plan proactively rather than reactively.