Tax system in japan

History

 

After World War II the Japanese tax system was rebuilt with American assistance.

  Amongst the various tax criteria most importance was placed on ‘tax equity’ with the

goal of making the Japanese tax system ‘the best tax system in the world’. 

  However the income tax was to be complimented by a net worth tax and an

inheritance tax

  The income tax base was to be broad thereby permitting low marginal tax rates.

  Corporations were to be treated as an aggregate of individuals rather than as

independent taxable entities.

  Thus corporations tax was to be treated as an advance payment of individual tax.

Observations

 

It was observed that the Japanese tax system has some unique or, at least, extreme

characteristics.

  The income tax imposed on individuals and companies.

 

The Japanese tax system has traditionally featured low personal income tax. In fact,

 possibly 20% of employees do not pay income tax.

  Fringe benefits are largely untaxed.

  Individuals may adopt generous standard deductions or claim actual employment

related expenses.

  To mitigate double taxation a credit is available for dividends received by both

companies and individuals although with companies receiving a greater credit up to

100%.

Features

 

Firstly, in order to access many of the tax concessions taxpayers must register for and

 be approved to lodge a ‘blue return’. 

  Secondly, the structure in which tax policy formulation occurs provides an interesting

alternative

 

Thirdly, Japan probably has the most developed withholding tax system in the World

  Tax systems should be comprehensive with low rates and the adoption of tax

expenditure programs should be limited.

 

  Finally, a significant feature of Japan’s income tax system policy of seeking to

encourage the location of foreign businesses to the country, is the concept of ‘non-

 permanent residence’ which carries with it tax concessions.

Withholding taxes

 

Income categories in relation to which withholding taxes are used include:

• wages and salary,

• interest,

• dividends,

• royalties,

• capital gains on the sale of shares,

• gains from selling discount bonds,

• retirement income,

• remuneration for professional services, and

• remuneration for entertainment services.

When to pay tax

  If you have to pay national income taxes for 2011, they had to be fully paid by March

15, 2012 (or April 20, 2012 in case of payment by automatic bank transfer), with the

 prepayments already paid in July and November 2011.

  Prefectural and municipal income taxes are paid in quarterly installments during the

following year. For example, the 2011 taxes are paid in four installments due in June,

August and October 2012 and January 2013.