Japan is also likely to say next month that it will lower the effective corporate tax rate to 20 percent from around 35 percent currently, the Yomiuri newspaper said citing several government sources, which could encourage firms to boost much-needed capital expenditure in Japan.
Prime Minister Shinzo Abe's government is set to announce the second part of its growth strategy next month. Investor disappointment with the first installment of the strategy last year contributed to a decline in Japanese shares.
One proposal is to expand the value of an investment that a so-called angel investor can deduct from his or her taxable income from the current limit of 10 million yen ($97,800) to several times as much, the Nikkei reported without citing the source of its information.
An angel investor is a wealthy individual who invests in promising start-ups that sometimes struggle to get funding from large venture capital firms.
The government may also expand the scheme to companies started within the past five years from the current limit of companies that have been founded in the past three years, the Nikkei said.
In fiscal 2013, angel investors used Japan's current tax breaks to invest in only 48 firms, which is only a tenth or even hundredth of the number of investments in other countries such as Britain, the Nikkei said.
In addition to a lack of start-up activity, established Japanese firms have sometimes complained that Japan's tax structure discourages investment because corporate taxes in other countries are much lower.
Members of the ruling Liberal Democratic Party want to lower the corporate tax rate gradually starting from fiscal 2015, but they need to discuss the details with their coalition partner, the New Komeito party, the Yomiuri reported.