Don' heave that sigh yet. Strains explains why only the rich will get richer in 1999 and why this is the year to finally buy that dream home.

When is a tax cut really a tax cut? That's a good question to ask, especially in light of the 1999 draft budget. This budget contained a JY9.4 trillion tax cut, the largest ever, but in reality a tax cut will only be seen by those with high incomes. Although tax cuts are supposed to stimulate the Japanese economy by encouraging people to spend spend spend, many people will actually end up paying more taxes in 1999 due to the changes made.

Why?
The income tax cuts originate from a combination of increased deductions for dependents, flat cuts to both income and residence taxes and a lower maximum tax rate. In making these changes, the Japanese government switched from cutting a fixed amount from everyone's taxes, which benefits low and middle income earners, to cuts based on a fixed rate which benefits higher income earners.

For those making less than JY8 million, you can expect to pay at least the same amount in 1999 as in 1998, and in many cases, a significant amount more. A married couple with two children won't see any tax decrease unless their income approaches JY8 million, while a single worker earning JY5 million will actually have to pay over JY90,000 more in taxes.

Home is where the tax break
The one potential bright spot is for those considering buying a residence. Unfortunately, a proposed tax break which would have truly stimulated the housing market by letting all home owners deduct the interest payments on their housing loans was dropped and not included in the draft budget. Even so, there may never be a better time to purchase a residence in Japan considering the current low interest rates, devalued land prices and the new tax cuts.

Previously someone who purchased a residence could deduct a specific amount equal to a set percentage of their outstanding home loan. This amount could be deducted from their taxes for six years, limited to a maximum of JY350,000 each year with the total over six years not exceeding JY1.8 million. The new housing tax breaks are significantly more generous than before. Taxpayers with loans for residences with more than 50 square meters of floor space will be able to deduct a maximum of JY5.8 million of their outstanding loan over a fifteen year period. If this new housing tax break looks enticing to you, you only have a short window of opportunity to qualify. It's expected to be in effect only for those who buy a residence in the next two years, then abolished. Happy house hunting!

Reproduced with permission of Kansai Time Out.