Japan's FY2026 tax reform redirects revenue toward local government

Japan's ruling coalition has approved its FY2026 tax reform, raising the tax-free income threshold from ¥1.6 million to ¥1.78 million and expanding deductions for buyers of pre-owned homes with mortgages. The reform also introduces a new revenue-sharing system that allocates certain tax streams — including a split on crypto-asset taxation — between national and local government depending on individual income levels.

The move adds Japan to the list of countries experimenting with giving local government a direct, formula-based share of specific national tax revenues, a model relevant to ongoing debates elsewhere about how to fund local services beyond traditional property-based taxes.