Taxation in Japan

Taxation in Japan is based primarily upon a national income tax (所得税) and a residential tax (住民税) based upon one's area of residence.[1] There are consumption taxes and excise taxes at the national level, an enterprise tax and a vehicle tax at the prefectural level and a property tax at the municipal level.

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Taxes are administered by the National Tax Agency.

Consumption tax

The Liberal Democratic Party government of Masayoshi Ōhira had attempted to introduce a consumption tax in 1979. Ohira met a lot of opposition within his own party and gave up on his attempt after his party suffered badly in the 1979 election. Ten years later Noboru Takeshita successfully negotiated with politicians, bureaucrats, business and labor unions to introduce a consumption tax,[2] which was introduced at a rate of 3% consumption tax in 1989.[3]

In April 1997[4] under the government of Ryutaro Hashimoto[5] it was increased to 5%.[6] The 5% is made up of a 4% national consumption tax and a 1% local consumption tax.[7] Shortly after the tax was introduced Japan fell into recession,[8] which was blamed by some on the consumption tax increase,[9] and by others on the 1997 Asian financial crisis.

Prime Minister Jun'ichirō Koizumi said he had no intention of raising the tax during his government, but after his massive victory in the 2005 election he lifted a ban on discussing it.[10] Over the following years a number of LDP politicians discussed raising it further, including prime ministers Shinzō Abe,[11] Yasuo Fukuda,[12] and Tarō Asō.[13]

The Democratic Party of Japan came to power in the August 2009 elections with a promise not to raise the consumption tax for four years.[14] The first DPJ prime minister, Yukio Hatoyama was opposed, but Naoto Kan replaced him and called for the consumption tax to be raised. The following prime minister, Yoshihiko Noda "staked his political life" on raising the tax.[15] Despite an internal battle that saw former DPJ leader and co-founder Ichirō Ozawa and many other DPJ diet members vote against the bill and then leave the party, on June 26, 2012, the lower house of the Japanese diet passed a bill to double the tax to 10%.[16] The new bill increased the tax to 8% in April 2014 and 10% in October 2015.[17] However, due to Japan's economic situation, the Abe government delayed the tax increase to 10% twice; initially until April 2017[18] and then October 2019.[19]

Income Tax

Controversial tax law

There is a spouse deduction that some have argued discourages men and women from entering the workforce full-time. In Japan, the Wall of 1.03 million yen and 1.30 million yen (103万円・130万円の壁) is a controversial social phenomenon among Japanese spouses due to the government's taxation policy. If a spouse's income is in excess of 1.03 million yen, which constitutes a taxable income of 380,000 yen , the couple cannot take the marital deduction (配偶者控除). If a spouse's income is in excess of 1.30 million yen, which constitutes a taxable income of 760,000 yen , a couple cannot take the special marital deduction (配偶者特別控除). A couple is not eligible for the marital deduction if the main earner's income is in excess of 10 million yen.[20]

Hometown tax

See main article: Hometown tax

Since 2008, Japanese taxpayers have been allowed to pay 2000 yen to redirect a portion of their income tax to one of the regions, instead of central government (despite the name, there is no obligation for this to be the taxpayer's 'home town'). As the regions compete to win these taxes by offering 'gifts' in exchange, the result is that taxpayers end up simply using it to buy products more cheaply (e.g. a donation of 2000 yen can produce a 'gift' of 60 kg of rice, equivalent to an adult's annual consumption).[21]

References
  1. Brasor, Philip, and Masako Tsubuku, "The rise and fall of property taxes", Japan Times, 3 January 2011, p. 9.
  2. The Daily Yomiuri Website REFLECTIONS ON LEADERSHIP--PART 2 / "Leaders should build network of contacts, keep enemies close" Retrieved on July 4, 2012
  3. "Japan Consumption Tax". Avalara: Vat Live. Retrieved June 10, 2019.
  4. The Daily Yomiuri Is the "cash payout plan" the most effective solution for stimulating the economy? Retrieved on July 4, 2012
  5. News Channel Asia Aso says raising consumption tax will not aid Japan's economy Retrieved on July 4, 2012
  6. Bloomberg website Japan’s Kan Tackles Sales Tax ‘Taboo’ That Obama Won’t Touch Retrieved on July 4, 2012
  7. JETRO website Section 3. Taxes in Japan - 3.6 Overview of consumption tax Archived 2017-11-10 at the Wayback Machine Retrieved on July 4, 2012
  8. East Asia Forum Japan’s aging population and public deficits Retrieved on July 4, 2012
  9. MSNBC Japan firms want 'safety first' on nuclear restarts: poll Retrieved on July 4, 2012
  10. Electronic Journal of Contemporary Japanese Studies "Can the Democratic Party Finally Raise Japan's Consumption Tax?" Archived 2012-07-16 at the Wayback Machine Retrieved on July 4, 2012
  11. The Japan Times "Sales tax hike would need voter OK via Lower House poll" Retrieved on July 4, 2012
  12. The Financial Express "Fukuda Vows to Continue Reform in Japan" Retrieved on July 4, 2012
  13. Reuters "Japan PM Aso says consumption tax hike unavoidable" Retrieved on July 2012
  14. Asashi Shimbun "DPJ'S GOVERNING FIASCO: Party never challenged Finance Ministry" Archived 2012-04-07 at the Wayback Machine Retrieved on July 4, 2012
  15. Forbes "For PM Noda: A Week of Political Drama and the Challenge Ahead" Retrieved on July 4, 2012
  16. Asahi Shimbun "UPDATE: Lower House passes bills to double consumption tax" Archived 2013-06-22 at the Wayback Machine Retrieved on July 4, 2012
  17. Daily Yomiuri website "Lower house OK's tax hike bills / 57 DPJ lawmakers rebel against vote; Ozawa 'studying various options'" Retrieved on July 4, 2012
  18. https://www.cnbc.com/2014/11/17/japan-pm-calls-snap-election-delays-sales-tax-hike.html
  19. https://www.bloomberg.com/news/articles/2016-06-01/abe-postpones-japan-s-sales-tax-hike-until-late-in-2019
  20. "配偶者の所得がいくらまでなら配偶者控除が受けられるか". Japan National Tax Agency. Retrieved 11 July 2019.
  21. "'Furusato Nōzei', tokuten de hirogaru kifu no o-rei ni 'jimoto tokusanhin', yarisugi no koe mo" 「ふるさと納税」、特典で広がる 寄付の御礼に「地元特産品」、やりすぎの声も ['Hometown Tax' spreading thanks to benefits, 'Local Produce' sent in exchange for donations, some voices critical]. J-CAST nyūsu J-CAST ニュース [J-CAST News] (in Japanese). 8 January 2014. Retrieved 16 May 2020.
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