TOKYO (Reuters) - Japan's ruling Liberal Democratic Party and its coalition partner agreed on Thursday to expand tax breaks on purchases of cars and homes to lessen the impact when the government doubles the 5 percent sales tax in stages over the next two years.
Lawmakers also agreed to extend tax breaks on energy efficient cars indefinitely and raise income taxes on the wealthy in their proposal for changes to the tax code from the fiscal year starting in April.
Japan's cabinet is likely to approve the proposal without significant changes as it rolls out big economic stimulus in an attempt to boost economic growth before households feel the impact of a higher sales tax.
The LDP agreed with coalition partner New Komeito to phase out a special tax on auto purchases when it raises the sales tax rate to 10 percent in 2015, according to a statement.
The two parties also agreed to make tax breaks on purchases of energy efficient cars a "permanent" policy, which could give domestic car sales a boost.
The statement called for a four-year extension of tax breaks on mortgages and a temporary increase in the limit on income tax deductions to prevent sharp declines in home sales after the sales tax rises.
The top income tax bracket will rise to 45 percent from 40 percent from fiscal 2015 for those earning 40 million yen ($451,800) or more, the statement said.
The changes to the tax code will also make it easier for companies to invest in new plants and equipment by establishing new tax breaks and making it easier to depreciate the amount of investment.
Economists and ratings agencies have often urged the government to raise taxes to trim its public debt burden, the worst among major economies, but previous governments have taken only tentative steps to raise taxes.
($1 = 88.5400 Japanese yen)
Reporting by Stanley White; Editing by Ron Popeski