learning more about taxes...an economic boom and stimulating total demand through a tax revenue...
TRANSCRIPT
About TaxesLearning More
Ministry of Finance, JapanOctober 2 0 1 9
Various Taxes1 Japan’s Tax Revenue2Changes in the Tax System and Tax Item features3 Fiscal Situation4
2 Learn about “Tax” Situations 4
Inheritance Tax1 Gift Tax2
4 Learn about “Inheritance Tax” and “Gift Tax” 14
Consumption Tax1Consumption Tax Rate Hike2Reduced Tax Rate System for Consumption Tax3
5 Learn about “Consumption Tax” 17
Corporation Tax1Growth-oriented Corporation Tax Reform2
6 Learn about “Corporation Tax” 22
International Taxation Systems1 Tax Conventions2
247 Learn about “International Taxation”
“Tax” is a “Society Membership Fee”.1 The Role of “Tax”2The Three Principles of “Tax”3
1 Learn about the Significance and Role of “Tax” 2
Income Tax1 Category of Income2 Personal Exemption3Changes in Income Tax Contributions4 Revisions to Income Tax (Revised 2018)5
3 Learn about “Income Tax” 9
T a b l e o f C o n t e n t s
8 Let’s discuss How “Taxes” should be in the Future 26
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PublicService
Police,Fire
prevention &Nationaldefense
Water, Roads& Other
InfrastructureEducation WelfareTaxes
Society based onmutual support
PensionMedical care
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1 Public services such as social security (e.g. pensions and medical care), infrastructure (e.g. tap water and road), education, pol ice ser v ices, f i re prevent ion, and defense ser v ices are indispensable for our affl uent life. However, their provision costs much money.
Learn about the Significance and Role of “Tax” “Tax” is a “Society Membership Fee”.1
People need widely and fairly share costs of public services to support each other and build a better society. Therefore, taxes can be accurately described as a “society membership fee”.
It is socia l ly inappropr iate to provide socia l secur ity and education only for people who can afford the costs. It is also difficult to provide police and defense services only for people who need them. If public services are left to be provided by the private sector under the market principles, they may fail to be provided in suffi cient volume or at suffi cient levels.
Thus, public services should be implemented in the public sector by us ing taxes to accommodate the need of publ ic services.
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１ Learn about the Signifi cance and Role of “Tax”
Principle of Neutrality Principle of SimplicityPrinciple of FairnessThe “horizontal fairness” principle requires people with the same economic capacity to pay the same tax, while the “vertical fairness” principle requires people with greater economic capacity to pay higher tax. In recent years,“fairness across generations” has become important.
The principle of simplicitymeans that the tax system s h o u l d b e a s s i m p l e as possible and made understandable.
The principle of neutrality m e a n s t h a t t h e t a x system should not distort economic activities by individuals and business corporations.
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The Role of “Tax”
Fundraising Function
Income Redistribution Function
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The Three Principles of “Tax”3
The tax system is positioned as the most direct and important means to raise funds for the public services mentioned above.
Income tax and inheritance tax have progressivity, which demand a greater burden on people with economic power, and they play a role in redistributing income and assets in conjunction with expenditures of social security benefi ts, etc.
In this way, there are various fairness indicators, while their implications are not always the same to everyone. It is necessary to consider such factors and build tax systems which adapt to the structured change in the economic society.
The tax automatically limits economic fluctuations and stabilizes the economy by holding down total demand through a tax revenue rise during an economic boom and stimulating total demand through a tax revenue decline during a slump .
Economy-stabilizing Function
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Tax on Income
Income tax, corporationtax, inhabitant tax, etc.
The income tax, corporation tax and othertaxes that are imposed on income (profi t)
Inheritance tax, gift tax,registration and license tax, etc.
The inheritance, fi xed asset tax, and other asset taxes that are imposed on the acquisition and possession of assets
Consumption tax, liquor tax,tobacco tax, gasoline tax, etc.
The consumption tax and other excise taxes that are levied on consumption of goods and services
Tax on Consumption Tax on Assets
●Income tax●Corporation tax●Special local corporation tax●Special corporate enterprise tax●Forest environment tax (From FY2024)●Special income tax for reconstruction●Local corporation tax
●Inhabitant tax●Enterprise tax
●Consumption tax ●Liquor tax●Tobacco tax●Special tobacco tax●Gasoline tax●Local gasoline tax●Liquefied petroleum gas tax●Aviation fuel tax●Petroleum and coal tax●Promotion of power resources development tax●Motor vehicle tonnage tax●International Tourist Tax●Tariffs ●Tonnage tax●Special tonnage tax
●Local consumption tax●Local tobacco tax●Golf course utilization tax●Automobile acquisition tax●Light oil delivery tax●Automobile tax (Environmental performance excise・category base)●Light motor vehicle tax (Environmental performance excise・category base)●Mine lot tax●Hunting tax●Mine production tax●Bathing tax
●Inheritance/gift tax●Registration and license tax●Stamp tax
●Real estate acquisition tax ●Fixed asset tax●City planning tax ●Establishment tax●Water utility and land profit tax●Common facilities tax●Housing land development tax●Special land possession tax●Discretionary tax earmarked for general use●Discretionary tax earmarked for special use●National health insurance tax
Income Taxation
Consum
ption Taxation
Asset Taxation, etc.
National Taxes Local Taxes National Taxes Local Taxes
Various Taxes1There are several ways to categorize taxes. Firstly, taxes may be
categorized by targets taxes are imposed on. Roughly, there are taxes on income, consumption, and assets. Secondly, taxes are categorized by who imposes taxes on. Taxes imposed by the national government are called national tax, while taxes imposed by prefectural or municipal governments are called local tax. There are more than 40 national or local taxes stipulated by law.
Taxes may also be classifi ed by who bears the tax (effective tax contributor) and who pays the tax (taxpayer). There are direct taxes such as income tax, for which the taxpayer is identical to the effective tax contributor, and indirect taxes such as consumption tax, for which the taxpayer differs from the effective tax contributor.
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２ Learn about “Tax” Situations
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Income Taxation Consumption Taxation Property Taxation
46.8
50.8
54.9
60.1 59.8
54.4 54.1
51.0 51.952.1
53.9
49.4
47.2
50.7
47.9
43.8 43.3
45.6
49.1 49.151.0
44.3
38.7
41.542.8
43.9
47.0
54.056.3 55.5
58.8 60.4
62.5
17.4
18.0
21.4
26.026.7
23.2 23.7
20.419.5
19.0 19.2
17.0
15.4
18.817.8
14.813.9
14.715.6
14.1
16.115.0
12.9 13.013.5
14.0
15.5
16.817.8 17.6
18.919.9 19.9
15.8
18.419.0
18.4
16.6
13.7
12.1 12.4
13.714.5
13.5
11.410.8
11.7
10.3
9.5
10.1
11.4
13.3
14.9
14.7
10.0
6.4
9.0 9.49.810.511.0 10.8 10.3
12.012.312.9
3.3
4.6 5.05.2 5.6 5.6
5.8 6.1
9.310.1 10.4 9.8 9.8
9.8
9.7 10.010.610.5 10.310.0
9.8 10.010.210.410.8
16.0
17.4 17.217.517.7
19.4
1987
(Note) Data until FY2018 are on a settlement basis, and data in FY2019 are on a budgeted basis.
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
(Fiscal Year)
General account tax revenues (Left axis)
Income tax (Right axis)
Consumption tax (Right axis)
Corporation tax (Right axis)
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5
10
15
20
25
30
35
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10
20
30
40
50
60
70(¥1 trillion) (¥1 trillion)
National tax revenues hit the record high of roughly 60 trillion yen in FY1990 during the bubble economy period. However, tax revenues later plunged due to tax cuts primarily in individual income tax and stagnant economic conditions.
In FY2009, national tax revenues dropped to roughly 39 trillion yen mainly due to the Lehman Shock. The later economic recovery and other factors led to tax revenues in FY2018 to rise to 60.4 trillion yen .
Trend of General Account Tax Revenues
Japan’s Tax Revenue2
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Income Tax
CorporationTax
ConsumptionTax
InheritanceTax
Tax Revenues(FY 2019 Budget)
¥19.9 trillion
¥12.9 trillion
¥19.4 trillion
¥2.2 trillion
Tax burdens increase progressively according to the tax paying capacity.Income tax is imposed mainly on the working generation.Various deductions are devised to give fi ne-tuned considerations toindividuals according to their conditions.
Tax policy requires to be consistent with government's Growth Strategy and also considerations must be given to maintain and improve international competitiveness.Various tax preferences to achieve certain policy goals are taken.Tax revenues are relatively sensitive to economic conditions.
Consumption tax burdens are shared widely by all citizens including elderly, instead of putting heavy burden on the working generation.Consumption tax revenues are relatively stable irrespective of economic changes.
The impact on economic activities is relatively small.
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It plays a role of preventing the gap between the rich and the poor from consolidating, so as to achieve the purpose of the redistribution of assets.The tax is levied on the personnel holding some assets as the subjects.
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Features
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During the era of Heisei (January 1989 to April 2019), in order to create fairer tax burden in the entire tax system, the personal income tax rate was reduced and consumption tax (3%) was established in 1989 to impose tax burden on consumption broadly with low-rate. This was the measures in response to the heavy burden of income tax during the late era of Showa (December 1926 to January 1989) and the diversifi cation of consumption activities, etc. It was followed by tax system reforms with the pillars of reducing personal income taxation and increasing consumption tax rate (from 3% to 5% in 1997). This was to prepare for the inevitable increase in the fi nancial demand for social security, since the population of working generation has decreased relatively due to the acceleration of declining fertility and aging population. In addition, under the initiative of Comprehensive Reforms of Social Security and Tax, the consumption tax has been considered as the fi nancial source of social security, with the view to share the cost by all generations which the large part of citizens would benefit. As such, in 2014, the consumption tax rate was hiked from 5% to 8%, and in October 2019, it was further hiked from 8% to 10%.During this period, the maximum tax rate of income tax has been revised in order to restore the income redistribution function and the structure of corporation taxation has been reformed to be more growth-oriented by ＂expanding the tax base while reducing the tax rate” in order to maintain the vitality and international competitiveness of domestic companies. As described, each of the tax categories has been revised to respond to the changes in social and economic situation. The features of the main tax items are as follows in the table below.
Changes in the Tax System and Tax Item features3
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624,95061.6％
199,34019.6％
128,58012.7％
63,0166.2％
326,60532.2％
193,92019.1％
103,11010.2％
1,014,571
257,08525.3％
69,5206.9％
340,593 33.6％
159,85015.8％
146,58014.4％
88,5028.7％
235,08223.2％
779,48976.8％1,014,571
（100.0％） （100.0％）
(Unit: 100 Million Yen)Expenditure Revenue
Social Security
Local AllocationTax Grants, etc.
69,0996.8％
PublicWorks
56,0255.5％
EducationAnd Science
52,5745.2%
NationalDefense
101,34710.0％
Others
Redemptionof theNational Debt
InterestPayments
NationalDebt Service
Primary*Expenses
General AccountTotal Expenditures
Tax andRevenues
Income Tax
CorporationTax
OtherRevenues
GovernmentBond issues
ConsumptionTaxOthers
General AccountTotal Revenues
Special Deficit-FinancingBonds
ConstructionBonds
(Note 1) Including temporary and special measures of 2,028 billion yen.(Note 2) Figures may not add up to the totals due to rounding.(Note 3) The percentage of social security expenses in the general expenditure* is 55.0%.
* “Primary Expenses”(=“General Account Total Expenditure” minus “National Debt Service”) is the amount of policy expenses for the fiscal year.* “General Expenditure” (=“Primary Expenses” minus the “Local Allocation Tax Grants, etc”.) is 61,963.9 billion yen (61.1%).
Food SupplyEnergyEconomic AssistanceFormer Military Personnel Pensions Promotion of SMES MiscellaneousContingency Reserves
9,823 (1.0)9,760 (1.0)5,021 (0.5)2,097 (0.2)1,790 (0.2)
67,856 (6.7) 5,000 (0.5)
Out of the total expenditure, the sizes of social security expenditure andnational debt services have increased in recent years, while the proportionof other policy expenses has decreased during the same period. National debt services, local allocation tax grants, and social security expenditures account for about 3/4 of the total expenditure.
Tax revenue is estimated to be approximately 62.5 trillion yen of the revenues in the general account budget of FY2019. In principle, the expenditures of the year should be covered by the tax and non-tax revenues of the same year. However, the budget of FY2019 only covers about two-thirds of the total expenditure. As a result, the remaining one-third relies on debt fi nancing (i.e., revenue generated by issuing government bonds), which constitute a burden for future generations.
FY2019 Budget: General Account
Fiscal Situation4
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Fiscal Situation
(Note 1) The data until FY2018 are on a settlement basis, and data in FY2019 are on a budgeted basis.(Note 2) The following various bonds are excluded: Ad-hoc Special Deficit-Financing Bonds issued in FY1990 as a source of funds to support peace and reconstruction activities in the Persian Gulf Region, Tax reduction-related Special Deficit-Financing Bonds issued in FY1994 - FY1996 to make up for decline in tax revenue due to a series of income tax cuts preceding consumption tax hike from 3% to 5%, Reconstruction Bonds issued in FY2011 as a source of funds to implement measures for the Reconstruction from the Great East Japan Earthquake, Pension-related Special Deficit-Financing Bonds issued in FY2012 and FY2013 as a source of funds to achieve the targeted national contribution to one-half of basic pension.(Note3) The dotted line in General account expenditures represents a figure including the expenditure for the Temporal and Special Measures; and the solid line represents excluding it. The amount of Bond issues includes the one issued for the Temporal and Special Measures; and the amount in parentheses represents the Construction bond issued for the Temporal and Special Measures.(Note4) Article 4(1) of the Public Finance Act prescribes that annual government expenditure has to be covered in principle by annual government revenue generated from other than government bonds or borrowings. But as an exception, a proviso of the Article allows the government to raise money through bond issuance or borrowings for the purpose of public works, capital subscription or lending. Bonds governed by this proviso of Article 4(1) are called “Construction Bonds”. (Note5) When estimating a shortage of government revenue despite the issuance of Construction Bonds, the government can issue government bonds based on a special act to raise money for the purpose of other than public works and the like. These bonds are generally called “Special Deficit-Financing Bonds”.
120
100
80
60
40
20
0
(Fiscal Year)
Construction bond issues
Special deficit-financing bond issues
General account expenditures
General account tax revenues
1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2.1 3.5 4.5 4.3 6.3 7.2 5.9 7.0 6.7 6.4 6.0 5.0 2.5 1.0 0.2 0.8 2.0
9.2 8.5
16.9
24.3 21.9 20.9
25.8
28.7 26.8 23.5 21.1 19.3
26.2
36.9 34.7 34.4 36.0 33.8 31.9 28.4 29.1 26.3 26.3 25.7
2.1 3.5 4.5 4.3 6.3 7.2 5.9 7.0 6.7 6.4 6.0 5.0 2.5 1.0 0.2 0.8 2.0
9.2 8.5
16.9
24.3 21.9 20.9
25.8
28.7 26.8 23.5 21.1 19.3
26.2
36.9 34.7 34.4 36.0 33.8 31.9 28.4 29.1 26.3 26.3 25.7
3.2 3.7 5.0 6.3
7.1 7.0 7.0 7.0 6.8 6.4 6.3 6.2 6.9 6.2 6.4 6.3 6.7
9.5
16.2 12.3
16.4
10.7 9.9
17.0
13.2 11.1
9.1
9.1 6.7 8.7
7.8 6.4 6.0
7.0
15.0
7.6 8.4 11.4
7.0 6.6 6.5 8.9
7.3 8.1 7.0 (0.8)
3.2 3.7 5.0 6.3
7.1 7.0 7.0 7.0 6.8 6.4 6.3 6.2 6.9 6.2 6.4 6.3 6.7
9.5
16.2 12.3
16.4
10.7 9.9
17.0
13.2 11.1
9.1
9.1 6.7 8.7
7.8 6.4 6.0
7.0
15.0
7.6 8.4 11.4
7.0 6.6 6.5 8.9
7.3 8.1 7.0 (0.8)
5.3 7.2 9.6 10.7
13.5 14.2 12.9 14.0 13.5 12.8 12.3 11.3
9.4 7.2 6.6 6.3 6.7
9.5
16.2 13.2
18.4 19.9 18.5
34.0 37.5
33.0 30.0
35.0 35.3 35.5
31.3
27.5 25.4
33.2
52.0
42.3 42.8 47.5
40.9 38.5 34.9 38.0
33.6 34.4 32.7
5.3 7.2 9.6 10.7
13.5 14.2 12.9 14.0 13.5 12.8 12.3 11.3
9.4 7.2 6.6 6.3 6.7
9.5
16.2 13.2
18.4 19.9 18.5
34.0 37.5
33.0 30.0
35.0 35.3 35.5
31.3
27.5 25.4
33.2
52.0
42.3 42.8 47.5
40.9 38.5 34.9 38.0
33.6 34.4 32.7
20.9 24.5
29.1
34.1
38.8
43.4 46.9
50.6 51.5 53.0 53.6 57.7
61.5
65.9 69.3 70.5
70.5
75.1
73.6
75.9 78.8
78.5
84.4
89.0 89.3
84.8 83.7
82.4
84.9 85.5
81.4
81.8
84.7
101.0
95.3
100.7
97.1
100.2
98.8
98.2
97.5 98.1
99.0
99.4
101.5
47.2
13.8 15.7 17.3
21.9 23.7 26.9 29.0 30.5 32.4 34.9 38.2
41.9
46.8
50.8
54.9
60.1 59.8
54.4
54.1
51.0
51.9
52.1
53.9
49.4
47.2
50.7 47.9
43.8
43.3 45.6 49.1 49.1
51.0
44.3
38.7 41.5 42.8
43.9 47.0
54.0 56.3 55.5
58.8 60.4 62.5
(¥1 trillion)
There is still a large gap between the expenditure and revenues. This gap has been financed by issuing government bonds (construction bonds and special deficit -financing bonds) as debt. The current tax system has not been able to cover the increasing expenditure due to factors such as aging population, and has not adequately fulfilled its fundraising functions.
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Tax RatesUp to ¥1.95 millionUp to ¥3.3 millionUp to ¥6.95 million
Up to ¥9 millionUp to ¥18 millionUp to ¥40 millionFrom ¥40 million～
5%10％20％23%33%40%45%
Personal ExemptionsBasic Exemption(Note）…¥0.38 millionSpouse Exemption…MAX ¥0.38 millionExemption…………………… ¥0.38 millionFor Dependents etc.
WageIncome
(Annual Income)
WageIncomeAmount
CalculatingWageIncome
Calculatinga TaxableIncomeAmount Calculated Tax
Amount Tax Amountto be Paid
Tax Credits
TaxableIncomeAmount
(Tax Base)
PersonalExemptions
(Note) The above is a chart about income tax in 2019. Employment income deductions and basic deductions are amended in the 2018 tax reforms (These will be applied to income tax from 2020).
EmploymentIncome
Exemption
Employment Income Exemption（Note）Up to ¥1.625 millionUp to ¥1.8 millionUp to ¥3.6 millionUp to ¥6.6 millionUp to ¥10 millionFrom ¥10 million
40％30％20%10%～
+++
¥0.65 million
¥0.18 million¥0.54 million¥1.2 million¥2.2 million
CalculatingTax Amount
In this way, income tax can require contribution according to income size and can be fi ne-tuned according to family structure and other personal circumstances.
Flow Chart for Calculation of Income Tax on Wage Earners
Income Tax1
3 Learn about “Income Tax”
① subtracting the employment income exemption from wage income (annualincome) to determine the wage income amount,
②
③
subtracting basic, spouse and other exemptions from the wage incomeamount to give consideration to the employee’s taxpaying capacity and
applying the progressive tax rate system (where higher tax rates are applied to higher income) to the remaining amount.
Income tax is imposed on wages, business profits, gains on land sale and other types of incomes. The income tax on an employee’s wage is calculated by
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Income is divided by type into the following 10 categories. Each income category is decided by the scope of income and necessary expenditures or other factors such as income calculation method.
Category ofincome Description Calculation method Taxation
method
Interestincome
Interest on bonds and savings/deposits, anddistribution of revenue from a joint operationtrust, bond investment trust, and publiclyoffered bond management investment trust
Separatewithholdingtaxation at source(Note 1)
Dividendincome
Real propertyincome
Businessincome
Employmentincome
Retirementincome
Timberincome
Capitalgains income
Occasionalincome
Miscellaneousincome
Income arising from the lease of real property,any right on real property, vessels or aircraft
Income arising from business, such asagricultural business, fishing business, manufacturing business, wholesale business, retail business, or service business
Any payment received in lump sum due toretirement such as a retirement allowance orlump-sum pension
Income from cutting or transfer of timber thathas been owned for more than five years
Income arising from the transfer of assets(including establishment of a superficies rightfor owning a building, etc.)
(Public pension, etc.) Amount of revenue－Pensionincome deduction
(Other income) Amount of revenue－Necessaryexpenses
Income that does not fall under any of theabove categories, such as public pension, etc.(e.g. national pension, employees' pension)
Amount
of
revenue
Acquisition costsand expenses fortransfer of theassets sold
Specialdeduction(￥500,000)
Income arising occasionally which is notincome arising from a continuous act carriedout for the purpose of profit, and which doesnot have a nature of compensation for anyservice such as labor or transfer of assets
Amount of revenue－Necessary expenses－Special deduction (￥500,000)
(Amount of revenue－Retirement income deduction) × ½* The 1/2 taxation rule does not apply to retirement allowances paid to corporate directors, etc. who have served for five years or under.
Comprehensivetaxation (filing ofreturn not required),Separateself-assessmenttaxation
Comprehensivetaxation
Comprehensivetaxation(Note 2)
Separatetaxation
Separate taxation(divided-by-fiveand tax rateapplied, thenmultiplied-by-fivefor the total taxamount)
Comprehensivetaxation(Note 2)
Comprehensivetaxation(Note 2)
Comprehensivetaxation(Note 2)
Comprehensivetaxation
Amount of income－Necessary expenses
Amount of income－Necessary expenses
Amount of revenue－Employment income deduction
Salary, compensation, wage, annual allowance,bonus, and any similar payment
Amount of revenue＝Amount of income
Dividends of surplus, dividends of profits, distribution of surplus, distribution of money from an investment corporation, interest on funds, and distribution of revenue from an investment trust (excluding bond investment trusts and publicly offered bond management investment trusts) and a specified beneficiary certificate issuance trust, all of which are to be received from a corporation
Amount of revenue
Interest on loanstaken out foracquiring shares,etc.
-
[ ]
[ ]
[ ]－ [ ]－
Amount
of
revenue
Expenses forgaining revenue
Specialdeduction(￥500,000)
[ ] [ ]－ [ ]－
(Note 1) Interest on specified bonds, etc. is subject to taxation without filing of return or separate self-assessment taxation.(Note 2) The following types of income are subject to separate taxation: income from the transfer of shares, etc. (business/capital gains/miscellaneous); income from the transfer of land, etc. (capital gains); income from the short-term transfer, etc. of land by real estate agents, etc. (business/miscellaneous [taxation suspended until March 31, 2020]); and income from futures transactions (business/capital gains/miscellanies).
Category of Income2
10
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3
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(Note) The figures in square brackets ([ ]) will go into effect after 2020 (as for inhabitant’s taxes after FY2021)
Basic personal deductionsSpecial personal deductions
Personal(Basic)deduction
Persons qualifying for deductions
Spouse deduction
Deductionfor dependents
Deductionfor widowersDeductionfor working students
Deductionfor widows
Ordinary spousesqualifying for deduction
Ordinary dependentrelativesSpecified dependentrelativesElderly dependentrelatives(Addition for elderlyparents, etc.living with taxpayers)
(Special additionfor widows)
(Deduction for personswith severe disabilitiesliving with taxpayers)
Elderly spousesqualifying for deduction
Specialdeductionfor spouses
Deductionfor persons withdisabilities
●Taxpayers
●Taxpayers who have spouses who depend on them for living expenses and earn 380,000 yen [480,000 yen] or under as total income (“spouses qualifying for deduction”)
●Taxpayers who have "spouses qualifying for deduction" aged under 70 years
●Taxpayers who have "spouses qualifying for deduction" aged 70 years or older
●Taxpayers who have relatives, etc. who depend on them for living expenses and earn 380,000 yen[480,000 yen] or under as total income (“dependent relatives”)
●Taxpayers who have dependent relatives aged 16 to 18 years or 32 to 69 years
●Taxpayers who have dependent relatives aged 19 to 22 years
●Taxpayers who have dependent relatives aged 70 years or older
●Taxpayers who live at all times with their elderly dependent relatives who are their lineal ascendants
●Widows who have children who fall within the category of dependent relatives
●Taxpayers who live at all times with spouses qualifying for deduction or dependent relatives who fall within the category of persons with severe disabilities
●Taxpayers who lost or divorced their wives and have children who fall within the category of dependent relatives
●Taxpayers who are students of schools provided under the School Education Acts
●Taxpayers who have spouses who depend on them for living expenses and earn more than 380,000 yen[480,000 yen] and not more than 1,230,000 yen [1,330,000 yen] as total income
●Taxpayers who fall within the category of persons with disabilities●Taxpayers who have spouses qualifying for deduction or dependent relatives who fall within the category of persons with disabilities
●Taxpayers who fall within the category of persons with severe disabilities●Taxpayers who have spouses qualifying for deduction or dependent relatives who fall within the category of persons with severe disabilities
(1) Taxpayers who lost their husbands
(2) Taxpayers who lost or divorced their husbands and have
dependent relatives
(Deduction for personswith severe disabilities)
[Income must be 25 million yen or under(the amount of deduction graduallydecreases for taxpayers who earnmore than 24 million yen)]
Income must be 10 million yen or under(the amount of deduction graduallydecreases for taxpayers who earn morethan 9 million yen
Income must be 10 million yen or under(the amount of deduction graduallydecreases for taxpayers who earn morethan 9 million yen)
―
―
―
―
―
―
―
―
In the case of (1)Income must be 5 million yen or under
Income must be 5 million yen or under
Income must be 5 million yen or under
Income must be 650,000 yen [750,000yen] or under as total income and notmore than 100,000 yen for income other than employment income
Income requirementfor taxpayers
―
There are exemptions such as basic exemption which applies to all people and exemptions which take into account individual circumstances such as family structure.
Personal Exemption3
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1. Deductions for employment income and pension will be changed over to basic deductions In consideration of a variety of working styles, we will uniformly reduce the employment income deduction applied to employment income, as well as the public pension deduction, by 100,000 yen. This is also to support work-style reform. Regardless of the kind of income, the amount of deduction applied to the basic deductions will be raised by 100,000 yen.
* Those who have both employment income and pension disbursements will only see a reduction for one of them.
(NOTE) The following revisions will be applied to income tax from 2020.
Salary
Taxedamount
NecessaryExpenses
EmploymentIncome Deduction
BasicDeduction
Public PensionDeductionPension Disbursements
Income from Freelance,Contracts, Starting a Business
Employment IncomeDeduction Changing
Over to Basic Deductions
+100,000 yen
(× tax rate)▶
(100,000 yen)(100,000 yen)
(100,000 yen)(100,000 yen)
Changes in individual income tax rates (Image)1984 ‒ 1986 1989 ‒ 1998 1999 ‒ 2006 2007 ‒ 2014 From 2015
IncomeTax
IncomeTax+
IndividualInhabitant
Tax
Wage income
Wage income
Wage income
Wage income Wage incomeWage income
Wage income
Wage income
Wage income Wage income
70%50%
37% 40% 45%
88% 65%50% 50% 55%
15brackets 5brackets4brackets 6brackets 7brackets
Income Tax
IndividualInhabitant Tax
Income Tax
IndividualInhabitant Tax
Income Tax
IndividualInhabitant Tax
Income TaxIndividual
Inhabitant TaxIndividual
Inhabitant Tax
Income Tax
40%
43%50%
30%
33%
33%
23%20%
20%
10%
15%10%
5%
Changes in Income Tax Contributions4
Revisions to Income Tax (Revised 2018)5
In the past, the highest income tax rate was 70% (for taxable income exceeding 80 million yen) , but the rate has been lowered to reduce tax burdens on wage earners. For income from 2015, a new tax rate of 45% was created for taxable income exceeding 40 million yen to revive income redistribution function of the tax system.
12
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8
Basic Deductions
Total Income
48(43)32(29)16(15)
0
（10,000 yen）
（10,000 yen）
*The amount in the bracket refers to the basic deduction of individual inhabitant tax.
2,4002,450
2,500
(NOTE) Those with dependents under 23 years old, as well as those with dependents who fall under the disability exemption. (Including those with disabilities who are not receiving nursing care)
Total Income
Basic Deductions Amount
（10,000yen）
（10,000yen）
（10,000yen）
Employment IncomeDeduction Amount
200
100
65
00 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
55
850
Max 2.2 mm yen
Max 1.95 mm yen
10 15
4838
Changed Over to
Income from Salary
Except for Households with Children, etc. (note)
10
*Individual inhabitant tax will be raised from 330,000 to 430,000 yen.
Employment income deductions are sometimes too large compared to work relatedexpenses and the standards of other countries. Therefore, we will have a policy of graduallyadjusting the deduction amount in accordance with the main countries. In accordance with the policy until now, if income exceeds 8.5 million yen, then the amount deducted will be reduced to 1.95 million yen. Measures are being taken to prevent cost increases for people with dependents who are under 23 years old, and dependents who are disabled. This is in consideration of the costs of raising children and other related expenses.
３． Adjustment to Public Pension and Other Deductions For public pension deductions, there is no maximum to deductions which are differentfrom employment income deductions. No matter how high your non-pension income is,you will have the same deductions as those who only live on their pension. This is a generousarrangement for those receiving both their pension and other sources of income. Considering this arrangement, we have instituted a limit of 1,955,000 yen for deductionsif pension income exceeds 10 million yen. This is also for the sake of fairness tocurrent and future generations. Furthermore, if the amount of income from non-pensionsources exceeds 10 million yen, the deduction is decreased.
４． Adjustment to Basic Deductions For basic deductions, we employ an income deduction method that deducts a fixedamount from income, regardless of the total income. However, based on the indicationthat it's not very necessary to expand the mitigating effects on the tax burden up tohigh income earners, we have made a structure that gradually decreases when the totalincome exceeds 24 million yen, and is eliminated at over 25 million yen.
(Note)
For those under 65 years old, the lowest amount/cost of
coverage (700,000 yen before the revisions) is ‒
*600,000 yen, due to the change to basic deductions
*500,000 yen for non-pension income exceeding 10 million yen
*400,000 yen for non-pension income exceeding 20 million yen
Amount of PensionIncome Deductions
(10,000yen)
12011010090
0 330 1,000Amount of Pension Income
205.5195.5
10
1010 Maximum Set
Change to Basic Deductions
Non-pension income,if more than 10 million yen
Non-pension income,if more than 20 million yen
Before Revisions
T h o s e W h o A r e O v e r 6 5 Y e a r s O l d
２． Adjustments to Employment Income Deductions
*Those making 8.5M to 10M Yen a year will see a gradual increase in their tax burden. (The amount undertaken is calculated on the premise of the single personnel in the working class and it is the sum of the income tax and individual inhabitant tax.)
Salary 10 million yen9.5 million yen9 million yen8.5 million yen
Increased burden None + 15,000 yen + 30,000 yen + 45,000 yen
Exemption None (50,000 yen) (100,000 yen) (150,000 yen)
*
(10,000yen)
131313
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1
Structure of Inheritance Tax
Inheritance taxes imposed on properties which tax payers acquire by inheritance. Progressive tax rates which apply higher tax rates to higher asset values are used for the inheritance tax to redistribute wealth.
When the inheritance tax is calculated, a basic exemption is deducted from the value of inherited properties. The basic exemption was raised in line with substantial land price hikes during the bubble economy period and later kept unchanged despite continuous land price drops. Also tax rates were gradually lowered. As a result, the inheritance tax was imposed for only 4% of decedents, leading to an argument that the inheritance tax’s function of redistributing wealth was declining.
4 Learn about “Inheritance Tax” and “Gift Tax”
Inheritance Tax1
141414
Total taxableinherited property
value
Basic deduction
Deduction of liabilities
Spouse(1/2)
(1/4)Child
Non - taxableProperties
30 million yen
×Number of legalheirs
Amount corresponding toeach legal heir's statutory
share of inheritance
＋6 million yen
Total amount of
inheritance tax
(1/4)Child
Calculation of the total amountof inheritance tax
Calculation of the amount of taxpayable by each heir
Taxable value ●Tax credit for spouses The amount equivalent to the spouse's statutory share of inheritance or 160 million yen, whichever is greater, is deducted from the amount of tax.●Tax credit for minors (number of years remaining before reaching the age of 20(*))× 100,000 yen is deducted.●Tax credit for person with disability (number of years remaining before reaching the age of 85) × 100,000 yen (or 200,000 yen for a person with severe disability) is deducted. etc.
Tax rate
Divided according to each heir's
statutory share in inheritance
Progressive tax rates applied
Divided according to each heir's
actual share of inheritance
Tax credit
(e.g. tax credit for spouses)
Spouse
Child Taxpayment
TaxpaymentChild
Up to 10 million yen
Up to 30 million yen
Up to 50 million yen
Up to 100 million yen
Up to 200 million yen
Up to 300 million yen
Up to 600 million yen
More than 600 million yen
10%15%20%30%40%45%50%55%
(*) The age of 18 for inheritance and bequest from April 1, 2022 onwards
1
2
3
4
5
6
7
8
0
5,000
10,000
15,000
20,000
25,000
30,000(¥100 million)
0
6
12
18
24
30
36（％）
(Year)1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
(Note 1) Inheritance tax revenues in the above graph are tax revenues in each fiscal year and include gift tax revenues (the data until FY2018 are on a settlement basis, and data in FY2019 are on a budgeted basis).(Note 2) The number of inheritance cases subject to inheritance tax, inheritance tax payments, and total taxable inherited property value are based on the National Tax Agency’s Annual Statistics Reports, and the number of deaths is based on the Ministry of Health, Labour and Welfare’s Vital Statistics.
Share of Inheritance cases subject to inheritance tax(Annual number of inheritance tax cases/Annual number of deaths)
Ratio of Inheritance tax payments to totaltaxable inherited property value
Inheritance tax revenues
8.3
12.9
777,,861861861861
17171717,,791791791791791791
25252525,,830830830830
29292929,,377377377377377
191919,,684684684684
212121,,314314314314314314
22222222,,920920920920
23232323,,333333333
22222222,,320320320320
5.3
7.9 6.8 6.0
14.3
17.4
22.2
18.1 16.6
Changes in Share of Inheritance Cases subject to Inheritance Tax, Ratio of Tax Payments to Total Taxable Inherited Property Value and Inheritance Tax Revenues
In response, the FY2013 tax reform expanded the inheritance taxation base by reducing the amount of basic exemption, and revised the inheritance tax rates to revive the inheritance tax’s function of redistributing wealth and prevent the consolidation of disparity.
ChronologyTax rate structure
Basicexemption
Posted landprice index
1983 1987 1991 1993 2002 2013
100 157.1 336.8 244.1 80.7 69.6
14 brackets 13 brackets 13 brackets 9 brackets 6 brackets 8 brackets
Above ¥500 million(Highest tax rate: 75%)
Above ¥500 million(Highest tax rate: 70%)
Above ¥1 billion(Highest tax rate: 70%)
Above ¥2 billion
(Highest tax rate: 70%)
Above ¥300 million(Highest tax rate: 50%)
Above ¥600 million(Highest tax rate: 55%)
¥20 million+
¥4 million * Number of statutory heirs Number of
statutory heirsNumber of statutory heirs
Number o f statutory heirs
Number of statutory heirs
¥40 million+
¥8 million *
¥48 million+
¥9.5 million *
¥50 million+
¥10 million *
¥30 million+
¥6 million * Same as on the left
Before theDecember 1988 reform
December 1988 reform(Implemented for inheritance
from January 1, 1988)
FY1992 reform (Implemented for inheritance
from January 1, 1992)
FY1994 reform(Implemented for inheritance
from January 1, 1994)
FY 2003(Implemented for inheritance
from January 1, 2003)
FY2013 reform (current)(Implemented for inheritance
from January 1, 2015)
Recent Changes in Inheritance Tax Rates and Basic Exemption
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１ ． Calendar Year Tax Case
* Properties gifted among support obligors to cover the cost of living or education, etc
Taxable Property Value
Gift Tax Amount
Progressive Tax Rates
Basic Exemption(¥1.1 million)
Annual Gift Receipt Value
Non-taxable Properties (*)
2 ． Inheritance Tax Adjustment System
(1) Gifted property amounts will be accumulated until an inheritance from gift givers(2) Nontaxable ceiling at 25 million yen after accumulation(3) A uniform 20% tax on total property value excluding the nontaxable ceiling amount
Tax Amount tobe Paid
¥10.36 million
¥10.36 million
¥0
Freefrom tax
The gifted property value (value upon gifting) is added to the inherited property value to adjust the inheritance tax.
Tax Amount to
be Paid¥1 million
Tax Rate×20%Nontaxable Ceiling
¥25 million
Gift Amount¥30 million
Free from taxTax paymentsupon giftingworth 1 million arerefunded
・・
Gift Amount¥30 million
¥45 million < Basic Exemption: ¥48 million
InheritanceAmount
¥15 million
System
Upon GiftingUpon Inheritance
Calculation for the case of gifting 30 million yen beforedeath and leaving 15 million yen for inheritance
(Statutory heirs are the gift giver’s spouse and two children for inheritance after January 1, 2015)
[Reference]Calendar Year
Tax Case
Total Tax to be PaidCase for choosing the inheritance tax adjustment system(choosing between the system and calendar year tax case)
Gift Giver: 60 years old or older Gift Receiver: Gift giver’s linear descendant as apparent heir or grandchild who is 20 years old (*) or older (*) 18 years old for gifts from April 1, 2022 onwards
10% Up to ¥2 million Up to ¥2 million15% Up to ¥4 million Up to ¥3 million20% Up to ¥6 million Up to ¥4 million30% Up to ¥10 million Up to ¥6 million40% Up to ¥15 million Up to ¥10 million45% Up to ¥30 million Up to ¥15 million50% Up to ¥45 million Up to ¥30 million55% Above ¥45 million Above ¥30 million
Taxable Property Value (Taxable Price After Basic Exemption)
Lineal Descendant Ordinary Gift ReceiverTax Rate
Gift tax is imposed on properties that tax payers acquire by gift. It supplements the inheritance tax by preventing people from attempting to take advantage of lifetime gifting to avoid the inheritance tax.
In line with aging population, ages for property transfers to children and grandchildren by inheritance are growing higher. If older people’s properties are transferred to their children and grandchildren earlier, their effective utilization may help revive the economic society.
Gift Tax2
In order to facilitate earlier transfers of older people＇s properties to their children and grandchildren, the government has promoted an initiative to create an inheritance tax adjustment system under which gift receivers will pay a uniform 20% tax on gifts with adjustments made upon calculation of inheritance tax.
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Consumers
Business entities may deduct input tax on purchase from output tax on sales.
Consumption taxTaxto be Paid
Taxto be Paid
Taxto be Paid500yen
* Calculated with a 10% tax rate
In the end, consumersbear 1,000yen
as consumption tax
Consumption taxConsumption tax
500yen200yen
700yen
300yenConsumption taxConsumption taxConsumption tax
Product producers
Taxpayers
Wholesalers
Taxpayers
Retailers
TaxpayersTaxpayersTaxpayers Taxpayers
¥11,000(Tax ¥1,100)
¥7,700(Tax ¥700)
¥5,500(Tax ¥500)
Consumption tax is levied broadly and fairly on consumption in general. In principle, sales and provision of goods and services in Japan are subject to consumption tax, and it is imposed on sales of business entities as taxable person. To avoid tax accumulation, business entities may deduct input tax from output tax they collected through their sales and pay the remainder to the tax authority.
5 Learn about “Consumption Tax”
Consumption Tax1
Structure of Consumption Tax
Consumption tax paid by business entities is added to sales prices as cost and supposed to be borne by final consumers (in contrast to income tax called “direct tax”, consumption tax of which taxable person and actual tax bearer are different is called “indirect tax”).
* In this chapter, consumption tax (national tax) and local consumption tax (local tax) are collectively referred to as “consumption tax”.
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Consumption Tax Rate Hike2
Consumption tax is suitable as a stable financial source for social security, as the burden is not shouldered only by specific generations such as working-age population. In addition, the impact on economic activities is relatively small, and the tax revenue is not easily affected by fl uctuations in the economy.
*
(Source) “The Financial Statistics of Social Security in Japan FY2016” by National Institute of Population and Social Security Research
FY1990 FY2017
About50
Trillion yenAbout16
Trillion yen
Taxes + Debts
(Ref.) Insurance Premiums
About71
Trillion yenAbout40
Trillion yenAbout 1.8 times
About 3.1 times
Share of Old Age in Japan(Share of Old Age = percentage of the population aged 65 years
and older against the entire population)Increases in taxes and debts to cover social security benefits
The financial source of social security, in principle, is based on mutual support through insurance premiums. As it is difficult to cover social security expenses solely by insurance premiums, other than putting heavy burden on working-age population, tax revenues and debts are also used for that purpose. Most of the expenses currently depends on the debts, which means the burden is deferred to future generations such as our children and grandchildren. In Japan, the aging is rapidly progressing and, at the same time, the cost of social security associated with aging continues to increase. That leads to increased dependence on tax revenues and debts as well. It is necessary to secure stable revenue in order to make the social security system sustainable for future generations. The burden of social security, that we would benefit from, must be covered by ourselves, through sharing the cost among all generations.In addition, in order to get over the biggest hurdle of decreasing birthrate and aging population, we shall expand the social security system, which previously focused on benefits mainly for the elderly population, and convert it to the social security system for all generations so to be utilized for the child-rearing and working-age population. Under this background, the consumption tax rate was hiked from 8% to 10% in October 2019.
18
(Source) UN, World Population Prospects: The 2017 Revision, “Population Census” by Ministry of Internal Affairs and Communications, and “Population Projections for Japan (2017)”by National Institute of Population and Social Security Research
1 out of 10 is old age (1990)
4 out of 10 are old age (2050)
（Year）
Japan
Germany
France
U.K.
U.S.
1
2
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8
All of the increased revenue of the consumption tax rate hike is allocated to social security, converting the social security system for all generations by utilizing such funds for child-rearing generation through elimination of childcare placement waiting list, free early childhood education and childcare, etc.
Convert to the Social Security System for All Generations
Measures to be implemented at the time of consumption tax rate hike from 8% to 10%
<Before Conversion> Consumption tax revenue is mainly allocated to elderly population
<After Conversion> Consumption tax revenue is newly utilized for elimination of childcare placement waiting list, free early childhood educationand childcare, etc., in order to expand usage to child-rearing generations
Easier environ-ment for
child-rearing
More fulfilling and reliable living after retirement
Expanding support
・Measures to cope with decreasing birthrate・Creating a safe and comfortable work environment for women and the elderly
All of the increased revenue of the consumption tax hike is allocated to social security and converting to the social security system for “all generations”
Reduction of contribution on long-term care insurance fee for elderly people with low income
Provision of benefits for supporting low-income pensioners
Elimination of childcare placement waiting list
Free higher education
Improvement of working conditions long-term care workers
Free early childhood education and childcare
O�ering additional 320 thousand child care places by the end of FY2020
Securing more support for nursing by improving benefits and compensation for care workers
Free preschool education (kindergartens, nursery schools, and certified childcare centers) for all children between the ages of 3 and 5 (For households of lower income, infants and toddlers of ages 0-2 will also be free of charge)
More reduction of insurance premiums for the elderly population with low income
Reduced tuition/grant-based scholarship for students who are truly in need with lower income family background
Benefit of up to 60,000 yen per year for pensioners with low income
low-income pensioners
nursery schools, and certified childcare centers) Free preschool education (kindergartens, nursery schools, and certified childcare centers) for all children between the ages of 3 and 5 (For households of lower income, infants and toddlers of ages 0-2 will also be free of charge)
Reduced tuition/grant-based scholarship for students who are truly in need with lower income family background
conditions long-term care workers
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1
A reduced tax rate of 8% is applied to purchases of foods and beverages (excluding liquors and eating-out) and others. The purpose of this scheme is to lessen the burden on household budget by retaining the consumption tax rate at 8% for those goods which are purchased by almost all consumers on a daily basis.
Reduced Tax Rate System for Consumption Tax3
The coverage of foods and beverages which are subject to the reduced tax rate
10％ ８％ (Standard Tax Rate) (Reduced Tax Rate)
《Eligible Items》○ Foods and drinks (excluding liquors and eating-out services) (*)〇 Newspaper (having signing the regular subscription contract and having been released twice or more a week)
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The implementation of the reduced tax rate system means that there are several consumption tax rates (standard rate at 10% and reduced rate at 8%) depending on goods and services. Therefore, receipts that correspond to the reduced tax rate system are issued and intentions of customers need to be confi rmed as follows. The applied tax rates can be confi rmed on receipts as described below.
Reduced Tax Rate System at Daily Shopping Scenes
How shops/stores check the intention of customers on using eating space or taking out purchased foods and beverages
Example of a receipt corresponding to the reduced tax system
XX Cake ShopTEL 03-XXXX-XXXX
17:45 Saturday, April 1, 20XX
Cream Puff ＊ １piece 180 180YENCake ＊ 1 piece 550 550YEN
Freezer Pack 20YEN
Items with * are eligible for a reduced tax rate
Subtotal (8% Tax Rate) 730YEN
Subtotal (10% Tax Rate) 20YEN（Amount of Tax) 54YEN）
(Amount of Tax 1 YEN)Total 750YENCash 1,000YENChange 250YEN
The total amount (including tax) by each tax rate is stated
That the item is eligible for a reduced tax rate
is clearly noted
Like restaurant services, the 10% consumption tax rate is applied when you eat and/or drink at an eating space of suppliers including fast food chains and convenience stores. On the other hand, the taking out of food and/or beverages at those stores is subject to the reduced tax rate of 8%. To determine the applicable rates, you will be asked whether you will eat your foods and/or beverages at the store or take them out.
Eating Space
Would you like to eat here at the eating
space?
(Through a shop staff) or (Through an information note)
There are several ways to confirm the intention of customers depending on business operation and practice. For example, shop staffs may ask custom-ers about their intention or shops may put information notes to make customers to notify at the cash register.
Either is applicable
If you would like to eat and/or drink purchased goods at the eating space, you should inform
at the cash register.
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Calculating periodical netincome in corporate accounting
Calculating taxable income andcorporation tax amount
・Material cost・Labor cost・Depreciation cost・Interest expense・Corporate business tax, etc.
Subtractions include items that are considered expenses for tax purposeswhile being treated as non-cost items in corporate accounting
Subtraction
Addition
Loss carryoverDeductions from income under special taxation measuresDividend income, etc.
TaxableincomePre-tax
incomeNet income
Costs
RevenuesCalculatedtax amount Corporation
tax amount
Tax credit×Tax rate
・Income tax credits・Credit for foreign taxes・Tax credits under special taxation measures, etc.
Additions include items that are not treated as expenses for tax purposeswhile being treated as costs in corporate accountingTransfer to certain reservesEntertainment expense abovea certain levelDonations, etc.
6 Learn about “Corporation Tax”
Corporation Tax1 The corporat ion tax i s lev ied on net income earn ings of their business operations. Taxable income of corporations is determined by subtracting costs from gross revenues. Gross revenues include income from sales of goods, services, lands, and buildings, etc. Costs include sales costs and losses from disasters, etc. (In practice, in order to determine taxable income, corporate accounting-based pre-tax income is subject to additions and subtractions (called tax adjustments) based on the Corporation Tax Act.)
Corporation tax amount is calculated by multiplying taxable incomeby the tax rate and subtracting tax credits.
222222
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International Comparison of Effective Corporation Tax Rates
(Note1) Tax rates are those (combining national and local taxes) imposed on corporate income. Local tax rates represent the standard rate for Japan, the Californian rate for the United States, the national average for Germany and the Ontario rate for Canada. In France, tax rate of 28% applies to the portion of the taxable income of 500,000 euro or below. If part of tax on corporate income is transferred to costs, rates after such adjustment are posted.(Note 2) The tax rate for Japan has been gradually reduced from FY2015, from 37.00% (before the reform) to 32.11% (FY2015), 29.97% (FY2016 and FY2017), and to 29.74% (FY2018 and onwards).(Note3) The tax rate for France will be decreased gradually from FY2018 and will reach 25% in FY2022. The tax rate for U.K. will decreased 17% in FY2020.(Source) Relevant government documents
Japan France Germany U.S. Canada China Italy U.K.
(As of January 1, 2019)
FY2019
29.74%
31.00% 29.89% 27.98% 26.50%25.00% 24.00%
19.00%
Growth-oriented Corporation Tax Reform2
The growth-oriented corporation tax reform started in FY2015 and in its second year FY2016 tax reform, the objective to achieve
“the percentage level of the effective tax rate to the twenties” was ensured.
The corporation tax reform was carried out based on the idea of “expanding the tax base (range of subject of taxation) while reducing the tax rate”. By reforming the structure so the burdens of corporation tax are shared more broadly and reducing the tax burdens on companies, etc. that have earning power, the reform aims to encourage companies to invest more proactively in the enhancement of their profit-earning capacity and the shift to the business structure that allows continuous and proactive wage hikes.
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As the background of the BEPS project, the fiscal situation deteriorated after the economic downturn in 2008, which led governments to ask for greater burden on ordinary citizens, who got frustrated at tax avoidance by multinational enterprises exploiting gaps between national and international taxation rules. Currently, member countries of the Project are revising their own tax systems and international tax treaties consistent with the project.
Problems with BEPS
○Individual taxpayers who cannot easily cross borders are forced to bear greater tax burden.
○Corporations who are not engaging in BEPS can put themselves at a competitive disadvantage. This harms fair competition.
Individuals
Corporations
Multinational enterprises minimize their tax burden by taking advantage of gaps between national and international tax rules
○Taxpayers increasingly feel unfairness and lose their trust in the tax system itself.
○The loss of tax revenue leads to fi scal deterioration.
○The lack of fund for social security, public investment and other necessary expenditure.
Government
〈Country A〉
ParentCompany
RelativelyHigher RawMaterial Cost
Raw Materials
$
〈Countries with lower tax rates thanthat of Country A〉
Subsidiary
BEPS between Related Companies
If a parent company sets a price higher than the normal transaction price to a subsidiary in a country with a lower tax rate, the parent company gains less income than the case with the normal transaction price. (A country with a higher tax rate loses tax revenue, and the company＇s profi ts are transferred to a country with a lower tax rate.)
●
●The shifted profi t is taxed in the country with the lower tax rate,
allowing the related company to reduce tax burden.
7 Learn about “International Taxation”
International Taxation Systems1
A recent major international effort is the BEPS (Base Erosion and ProfitShifting) Project. In order to achieve a level playing field, the Project aims toprevent multinational enterprises from engaging in BEPS. The OECD has beentaking the lead of the Project collaborating with countries including Japan. Themajor nations endorsed the package of measures developed under the Projectin October 2015, and now it has been increasingly inclusive with more than 130 jurisdictions participating.
The international taxation system is a mechanism to adjust tax procedures for corporations and individuals which engage in cross-border economic activities. The coordination and clarification of international tax rules are important for economic activities and governments. Therefore, designing Japan＇s international taxation system reflects international discussions.
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Japan has concluded tax conventions with other jurisdictions to eliminate double taxation and promote investment and economic exchanges with those jurisdictions. Tax conventions provide the measures against international tax avoidance and the avoidance of tax collection through a framework for cooperation between tax authorities including exchange of information on taxpayers and mutual assistance in the collection of unpaid taxes.
Japan applies 75 tax conventions, etc. to 132 jurisdictions as of October 1, 2019.
Japan’s Tax Convention Network《75 conventions, etc. applicable to 132 jurisdictions; as of October 1, 2019 》(see notes 1 and 2)
Tax Conventions2
252525
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The Tax Commission compiled the mid-term report “The Desirable Tax System in the era of Reiwa* in Light of Structural Changes in the Economic System” in September 2019. Please read the report and think about how the tax system should be to support the society.*Reiwa is Japan＇s new era name and began to be used from May 1，2019.
“The Desirable Tax System in the era of Reiwa in Light of Structural Changes in the Economic System” (September 26, 2019, Reported by the Tax Commission)
Declining population, declining fertility and aging population
Diversification of working styles and life courses Advancement of globalization
Digitalization of economy Structural deterioration of public fi nance
8 Let’s discuss How “Taxes” should be in the Future
Desirable tax system in the era of Reiwa
Responding to the declining population, declining fertility
and aging population
There will be a limit in seeking increased burdens only from the working generation. As globalization progresses, it is necessary to consider the impact on the international competitiveness with regard to corporate burdens.The tax burden of consumption tax is widely shared by the public. Although some point out that this is an income-regressive system, the impacts on investment, production, international competitiveness and motivation to work as well as fluctuations in tax revenues are relatively small.In order to ensure the social security for all generations, the consumption tax rate will be increased to 10%. The role of consumption tax is becoming more important as the population declines aged-society with fertility declines and progress of globalization.
Establishing the tax payment environment for the digital age
and realizing proper and fair taxation
It is important to review tax-related procedures comprehensively, improve the convenience of taxpayers by utilizing ICT, and proceed further to consider the mechanism that achieves proper and fair taxation.It is necessary to improve the public understanding of taxes, so that each citizen would proactively consider and feel convinced with their desirable tax system that sustain their society.
Establishing
a sustainable local tax and fi nanceIn addition to securing and enhancing the local tax, it is necessary to establish local tax structures which minimal maldistribution of tax sources which offers stable tax revenue.
Responding to globalization and digitalization of economy
Corporation taxation needs to be revisited to build a structure that contributes to the development of environment in which new industr ies and businesses can be easi ly established and launched, while considering the impact on international competitiveness.It is important to take coordinated measures based on international consensus in order to respond to challenges on international taxation associated with the digitalization of the economy.The consolidated tax payment system needs to be reviewed based to simplify from the view point to reduce corporates’ administration burdens. Taxes related to energy and automobile need to be examined from a mid- to long-term perspective.
Responding to diversification of working styles and life
courses
The personal income taxation needs to be further reviewed in terms of various exemptions, so that they are fairly applied according to differences in working styles, in order to establish a neutral taxation system that respects personal decisions, while considering the appropriate redistribution of funds.
The tax system for corporate and individual pensions need to be reviewed in order to establish a fair and just taxation system that does not cause advantages or disadvantages due to differences in working styles, and for appropriate tax burdens through each phase of contribution, fund management, and benefit.As for taxation on assets and properties, increasing successions of older generations to old generations makes transfer of assets to younger generations very difficult. It is necessary to consider building a tax system which is neutral regarding the selection of the timing of asset transfers, by grasping inheritance tax and gift tax more comprehensively, while preventing the gap between the rich and poor from staying fixed.
Structural changes in the economic system
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See documents on tax system reforms and types of tax systems (illustrated).
You can obtain information on the background of the Consumption Tax rate hike and the Reduced Tax Rate System.
and go to the Tax Policy Website
and go to the Consumption Tax rate hike(October 1,2019) Website
Consumption Tax Rate Hike
(October 1, 2019)
Ministry of Finance, Japan
Ministry of Finance, Japan
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Tax Policy Website
Consumption Tax rate hike(October 1,2019) Website
http:www.mof.go.jp/english
http:www.mof.go.jp/english
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