Chapter 3 Japanese Tax System

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Chapter 3Japanese Tax System
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Part II Contemporary Japanese Tax System and its
Features
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Structure of Japanese Government Tax
Management system
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1.Three-level Government

• Central Government
• Local Government
• Prefectures
• Municipalities

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The number of prefectures and municipalities are
as follows (as of April 1, 2007)

• Prefectures
• Metropolis 1 (Tokyo)
• Others 46
• Total 47

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• Municipalities
• Cities 782 (incl. 17 Designated Cities)
• Towns 827
• Villages 195
• Total 1,804

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2?Revenue management system

• Three-level Collection and Management System
• Congressional legislation

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3. Tax classifying
National tax Local tax Ordinary taxes Special
purpose taxes
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4. Tax structure of three-level Government
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• PROPORTION OF NATIONAL TAX REVENUE IN FY 2001

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PROPORTION OF PREFECTURAL TAX REVENUE IN FY 2001
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PROPORTION OF MUNICIPAL TAX REVENUE IN FY 2001
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5?Introduction of main taxes

• Income tax
• Inhabitant tax
• Enterprise tax
• Consumption tax (VAT)
• Property tax

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Income Tax

• Taxpayers
• Tax base
• Taxable income
• Basic Computation
• Exemptions and credits
• Tax rates
• Blue Return System

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Taxpayers

• Resident
• permanent resident
• non-permanent resident
• Non-Resident  
• A person who has lived in Japan for less than
  one year and does not have his primary base of
  living in Japan. Non-residents pay taxes only on
  income from sources in Japan, but not on income
  from abroad.

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Tax Base

• ?? Interest income
• ?? Dividend income
• ?? Real estate income (income from land and
  buildings)
• ?? Business income (income from self-employment
  and other business)
• ?? Employment income (income from employment)
• ?? Retirement income (income from lump sum
  retirement payments etc.)
• ?? Timber income (income from sale or transfer of
  timber)
• ?? Capital gains (income from sale or transfer of
  assets)
• ?? Occasional income (income of an occasional
  nature)
• ?? Miscellaneous income (income other than above)

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Exemptions and Deductions

• The following 15 special exemptions are allowed
  for the computation of taxable income.
• ?? Deduction for casualty losses
• ?? Medical expenses deduction
• ?? Deduction for social insurance premiums
• ?? Deduction for premium of small enterprise
  mutual aid
• ?? Deduction for life insurance premium
• ?? Deduction for non-life insurance premium
• ??

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• Deduction for contribution or donation
• ?? Exemption for handicapped person
• ?? Exemption for aged person
• ?? Exemption for widow or widower
• ?? Exemption for working student
• ?? Exemption for spouse
• ?? Special exemption for spouse
• ?? Exemption for dependents
• ?? Basic exemption

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Credits

• ?? Credit for Dividends
• ?? Credit for Foreign Taxes
• ?? Credit for housing loans

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Tax Rate(2007)
Referencehttp//www.worldwide-tax.com/japan/japan
_tax.asp
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Basic Computation

• Income
• Aggregated income
• Taxable aggregated income
• Tax liability

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Special Treatments

• There are a variety of special treatments for the
  calculation of tax base other than above.
  .
• Interest income, for example, is separately taxed
  from other types of income. That is, interest
  income is subject to 15 (plus 5 inhabitant tax)
  withholding and it is final. No deduction is
  allowed for the calculation of interest income.
  .
• .

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• Retirement income is taxed half the amount of
  total receipt minus special deduction, the
  deduction which is 400,000 per year for up to 20
  years of employment duration and 700,000 per
  year for more than 20 years.
  .
• Timber income is subject to split taxation, which
  applies the tax rate to the amount equivalent to
  1/5 of the amount of taxable timber income and
  then by multiplying the result obtained in the
  above by 5. Up to 500,000 of special deduction
  is allowed after the subtraction of the necessary
  expenses. .

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QUESTIONS

• Please compare the USAs individual income tax
  with Japaneses income tax.
• What can we learn from Japans individual income
  tax?

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Inhabitants Tax

• The Prefectural Inhabitants Tax and the Municipal
  Inhabitants Tax are usually referred to as Local
  Inhabitants Taxes.

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Corporate Inhabitants tax
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Individual Inhabitants tax
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4. Local Enterprise Tax

• Taxpayer All corporations carrying on business
  and having their offices or place of operation in
  the prefecture Individuals carrying on a
  specified business as prescribed in the Local Tax
  Law and having their offices or places of
  operation in the prefecture.

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• Notes  Japan's individual income tax rates
  including local taxes are among the highest tax
  rates in the world. The effective top marginal
  tax rate is around 50.  

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5. Consumption Tax (VAT)

• The introduction of the consumption tax was in
  1988 in the course of the fundamental tax reform
  and has been in force since April 1, 1989. There
  are some specific features of the consumption tax
  designed to ease the taxpayers compliance cost.
  First the deduction of tax on input is calculated
  based on bookkeeping method supported by
  business invoices, in contrast, most of the
  countries having VAT in place adopt a method in
  which amounts of tax on purchases are deducted
  based on tax invoices.

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• Second, it offers a simplified option for the
  computation of input tax by adopting five
  categories of the deemed purchase ratio. It has
  been contributing to finance the government as
  the third largest share of tax in the system.
• The scope of the consumption tax is domestic
  transactions, which are transfer or leasing of
  assets and provision of services in exchange for
  compensation by enterprises as business in Japan,
  and import transactions, which are foreign
  cargoes collected from bonded areas.

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The Main Features of the Present Japanese Tax
System
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Features of Tax System

• 1. Tax structure Direct taxes as the main
• 2.Tax Burden Relatively light
• 3.Division between National Tax and Local Tax
  Highlight the central position of national

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HOMEWORK

• Please compare the USAs individual income tax
  with Japanese income tax.
• What can we learn from Japans individual income
  tax?