Photo/IllutrationThe Asahi Shimbun

The Finance Ministry plans to raise taxes on high-income company employees and give bigger tax breaks to freelancers and others who do work for companies but are not officially on their payrolls.

The Research Commission on the Tax System of the ruling Liberal Democratic Party, at an unofficial executives meeting on Nov. 14, decided to consider the ministry’s proposal.

The commission aims to incorporate the changes in the tax reform plan for fiscal 2018 that is scheduled to be compiled at the end of this year.

The ministry is reviewing the income tax system because more people, such as designers and system engineers, are working as individuals without officially joining companies.

Although they may have more freedom in their work, they receive fewer income tax breaks than company employees.

To narrow the gap, the ministry’s plan focuses largely on the size of deductions permitted on taxable income.

Company employees can currently list the costs of business suits and other items as necessary job-related expenses and deduct the amount from their taxable incomes.

The size of such deductions starts at 650,000 yen (about $5,740) and gradually increases in accordance with the amount of annual income. The upper deduction limit is 2.2 million yen for company employees who earn 10 million yen or more a year.

According to the ministry’s proposal, the deduction amount will be reduced irrespective of income, and the upper limit will be lowered.

Non-company workers are not eligible for deductions under this system, but they, like all taxpayers, can currently claim a basic deduction of 380,000 yen.

The ministry plans to increase the size of the basic deduction, allowing non-company workers to pay less in income taxes.

It is also considering gradually shrinking and eventually abolishing the basic deduction for high-income company employees.

For low-income or middle-income company employees, the reduced deduction amount will reach around the same level as the hike in the basic deduction amount, meaning they will not suffer a tax increase, according to the ministry’s plan.

However, the ministry has not decided who will be considered a high-income company employee.

Of the 49 million company employees in 2016, about 2 million, or 4 percent, earned salaries of more than 10 million yen. Those with annual income topping 8 million yen numbered about 4.3 million, or 9 percent of the total.

The ministry could secure more revenue by lowering the level for what is considered a high income, but that could cause a backlash from a larger number of people.

(This article was written by Junichiro Nagasaki and Keiko Nannichi.)