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Ministry of Finance, JapanJune 2020
Learning More About Taxes
Table of Contents
Various Taxes Japan's Tax Revenue
Changes in the Tax System and Tax Item features
Fiscal Situation
2 Learn about "Tax" Situations 4
Inheritance Tax Gift Tax
4 Learn about "Inheritance Tax" and "Gift Tax" 14
Consumption Tax
Consumption Tax Rate Hike
Reduced Tax Rate System for Consumption Tax
5 Learn about "Consumption Tax" 17
Corporation Tax
Growth-oriented Corporation Tax Reform
6 Learn about "Corporation Tax" 22
International Taxation Systems Tax Conventions
247 Learn about "International Taxation"
"Tax" is a "Society Membership Fee". The Role of "Tax"
The Three Principles of "Tax"
1 Learn about the Significance and Role of "Tax" 2
Income Tax Category of Income Personal Exemption
Changes in Income Tax Contributions
3 Learn about "Income Tax" 10
8 Let's discuss How "Taxes" should be in the Future 26
1 2
3
1 2
3
4 Balance of Benefits and Burdens5
1 2 3
4
1 2
1
2
3
1
2
1 2
2
2
3
4
5
6
7
8
1
3
PublicService
Police,Fire
prevention &Nationaldefense
Water RoadEducation WelfareTaxes
Society based onmutual support
PensionMedical care
Public services such as social security (e.g. pensions and medical care), infrastructure (e.g. tap water and road), education, police services, fire prevention, and defense services are indispensable for our affluent life. However, their provision costs much money.
It is socially inappropriate to provide social security 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 sufficient volume or at sufficient levels.
Thus, public services should be implemented in the public sector by using taxes to accommodate the need of public services.
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".
１ Learn about the Significance and Role of "Tax"
"Tax" is a "Society Membership Fee".1
Services
1
3
4
5
6
7
8
2
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 simplicity
means that the tax system
should be as simple as possible
and made understandable.
The principle of neutrality
means that the tax system
should not distort economic
activities by individuals and
business corporations.
Fundraising Function
Income Redistribution Function
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 benefits, 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
The Role of "Tax"2
The Three Principles of "Tax"3
4
2
3
4
5
6
7
8
1
Various Taxes1
5
Tax on Income
Income tax, corporation
tax, inhabitant tax, etc.
The income tax, corporation tax and other
taxes that are imposed on income (profit)
Inheritance tax, gift tax,registration and license tax, etc.
The inheritance, fixed 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
There 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 classified 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.
２ Learn about "Tax" Situations
Income Taxation Consumption Taxation Property Taxation
● 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 TaxationAsset Taxation, etc.
National Taxes Local Taxes National Taxes Local Taxes
1
2
3
4
5
6
7
8
46.8
50.8
54.9
60.1 59.8
54.4 54.1
51.051.9 52.1
53.9
49.4
47.2
50.7
47.9
43.843.3
45.6
49.1 49.1
51.0
44.3
38.7
41.542.8
43.9
47.0
54.056.3 55.5
58.8 60.4 60.2
63.5
17.4
18.0
21.4
26.026.7
23.2 23.7
20.4
19.519.0 19.2
17.0
15.4
18.817.8
14.8
13.914.7
15.6
14.1
16.1
15.0
12.9 13.013.5
14.0
15.5
16.817.8 17.6
18.919.9
19.1
15.8
18.4
19.0
18.4
16.6
13.7
12.112.4
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 9.4 9.810.5
11.0 10.810.3
12.0 12.3 11.7
3.3
4.6 5.0 5.2 5.6 5.6 5.8 6.1
9.310.110.4
9.8 9.8
9.8
9.7 10.010.6 10.510.310.0
9.8 10.0 10.2 10.410.8
16.0
17.4 17.217.517.7
19.1
0
5
10
15
20
25
30
35
0
10
20
30
40
50
60
70
19.5
12.1
21.7
General account tax revenues (Left axis)
Income tax (Right axis)
Corporation tax (Right axis)
Consumption tax (Right axis)
(¥1 trillion) (¥1 trillion)
(Note) The data until FY2018 are on a settlement basis, the data of FY2019 is the amount of revised budget, and the data of FY2020 is on a budgeted basis.
(FY)
National tax revenues (general account) hit 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 about 39 trillion yen due to the Lehman Shock. An economic recovery and a consumption tax increase led to tax revenues in FY2018 to rise to 60.4 trillion yen.
Trend of General Account Tax Revenues
Japan's Tax Revenue2
6
2
3
4
5
6
7
8
1
Income Tax
CorporationTax
ConsumptionTax
InheritanceTax
National Tax Revenue(Budget of FY2020)
¥19.5 trillion
¥12.1 trillion
¥21.7 trillion
¥2.3 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 fine-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.
・
・・
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.
・
・
Features
・・・
・
・・
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.Later, tax reforms were implemented with the pillars of reducing personal income taxation and changing consumption tax (including the local consumption tax) rate from 3% to 5% (in1997), considering the inevitable increase in the financial demand for social security, while 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 financial 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 tothe 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
7
1
2
3
4
5
6
7
8
Fiscal Situation4
(Unit: 100 Million Yen)
Expenditure Revenue
Social Security405,272
（25.3％）[404,786]
Local Allocation Tax Grants
158,341（9.9％）
Public Works68,571
（4.3％）[60,669]Education
and Science 60,005
（3.7％）[58,862]
National Defense53,317
（3.3％）[52,809]
Others616,931
（38.5％）[608,428]
Redemption of the National Debt
153,748（9.6％）
Interest Payments86,422
（5.4％）
National Debt Service
240,169（15.0％）
Primary Expenses1,362,438
（85.0％）[1,343,894]
General Account
Total Expenditures1,602,607
（100.0％）[1,584,064]
Tax Revenues635,130
（39.6％）
Income Tax195,290
（12.2％）Corporation
Tax 120,650
（7.5％）
Other Revenues
65,888（4.1％）
Government Bond901,589
（56.3%）
Consumption Tax
217,190（13.6％）
Others102,000
（6.4％）
General Account
Total Revenues1,602,607
（100.0%）
Special Deficit-Financing
Bonds714,209
（44.6％）
Construction Bonds
187,380（11.7％）
Promotion of SMES Food SupplyEnergyEconomic Assistance Former Military Personnel PensionsMiscellaneousContingency ReservesContingency reservesfor measures against COVID-19
223,97412,8479,5776,4861,750
242,2985,000
115,000
(14.0％）(0.8％)(0.6％)(0.4％) (0.1％) (15.1％)(0.3％)
(7.2％)
[223,944][12,839][9,090]
[234,319]
(Note 1) Figures in [ ] exclude temporary and special measures (which are to be taken in the
(Note 2) "Primary Expenses" refers to expenses excluding National Debt Service. It is an index to show policy expenses for the fiscal year.
(Note 3) "General Expenditure" (="Primary Expenses" minus the "Local Allocation Tax Grants, etc.") is 1,240,096 (75.1%), out of which social security accounts for 33.7%.
initial budgets for FY 2019 and 2020 from the perspective of responding flexibly to demand fluctuation caused by the consumption tax rate hike).
In recent years, social security-related expenses and national debt services (principal
and interest payments on the government bond) have increased in national general
account expenditures, while the proportion of other policy expenses has decreased.
In recent budgets, social security-related expenses, national debt services, and local
allocation tax grants account for about three-quarters of total expenditures.
In the FY 2020, since additional funds were appropriated to implement measures
against new coronavirus infection after the initial budget was approved, the total amount
of general account expenditures for the FY 2020 (after the second supplementary
budget amendment) is approximately 160.2 trillion yen.
In the FY 2020 budget (after the second supplementary budget amendment), tax
revenues are expected to be about 63.5 trillion yen in tax, which is about two-fifths of
total expenditures.
FY2020 Budget: General Account
8
2
3
4
5
6
7
8
1
160
140
120
100
80
60
40
20
0 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
27.9
71.4
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
27.9
71.4
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
18.7
9.1
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
18.7
9.1
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
37.1
90.2
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
37.1
90.2
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
104.7
160.3
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 60.2
63.5General Account Tax Revenue
General Account Expenditure
Construction Bond
Special Deficit-Financing Bond
(Note) The data until FY2018 are on a settlement basis, the data of FY2019 is the revised budget, and the data of FY2020 is based on the budget after the 2ndrevision.(Note 2) The following 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 FY1994-1996 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. (Note 3) The figures of FY 2019 and FY 2020 include those of temporary and special measures.
(FY)
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 2020
(¥1 trillion)
Fiscal Situation
There is a large gap between general account expenditures and tax revenues, which
has been financed by issuing government bonds (construction bonds and special
deficit-financing bonds) as debt. The burden has been postponed to the generation of
our children and grandchildren. 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 basic function of fund raising.
9
1
2
3
4
5
6
7
8
10
32.3
31.7
30.8
28.7
28.4
27.5
26.8
26.8
26.7
24.7
23.5
23.4
22.8
22.7
22.6
22.4
21.8
21.1
19.4
18.6
18.0
17.4
17.2
17.0
16.8
16.4
15.7
15.3
14.5
11.1
10.2
0 20 40
１ France
Social Security Expenditures
Non-Social Security Expenditures (as percentage of GDP)
[2017]
２ Finland
３ Denmark
４ Austria
５ Norway
６ Italy
７ Sweden
８ Belgium
９ Germany
10 Greece
11 Japan
12 Netherlands
13 Portugal
14 Slovenia
15 Luxembourg
16 Spain
17 U.K.
18 Slovakia
19 Poland
20 Czech
21 Hungary
22 Estonia
23 Iceland
24 Australia
25 U.S.
26 Lithuania
27 Israel
28 Switzerland
29 Latvia
30 Ireland
31 South Korea
32 Chile
(Source) OECD "National Accounts", "Revenue Statistics", Cabinet Office "SNA (National Accounts of Japan)", etc.
27.8
25.6
25.1
24.1
23.1
22.8
22.7
22.4
22.1
21.9
21.7
21.1
21.0
20.9
20.4
20.4
20.4
20.0
19.7
19.5
19.2
19.2
19.0
19.0
18.6
18.5
18.0
17.7
16.2
15.2
11.5
0 20 40
１ Hungary
２ Iceland
３ Belgium
４ France
５ Israel
６ Latvia
７ Greece
８ Sweden
９ Finland
10 Portugal
11 Norway
12 U.S.
13 Estonia
14 Italy
15 Austria
16 Slovenia
17 Denmark
18 Poland
19 Slovakia
20 Czech
21 Luxembourg
22 South Korea
23 Netherlands
24 Australia
25 Spain
26 Switzerland
27 U.K.
28 Germany
29 Lithuania
30 Chile
31 Japan
32 Ireland
46.1
34.4
34.1
31.0
30.4
29.5
29.2
28.5
27.9
27.4
27.3
27.2
26.9
26.6
25.6
25.0
24.9
23.6
23.0
22.5
21.8
21.8
21.5
21.3
20.6
19.9
18.8
18.7
18.7
18.7
17.2
0 20 40 60 （%）（%）（%）
１ Denmark
２ Sweden
３ Iceland
４ Finland
５ Belgium
６ France
７ Italy
８ Norway
９ Australia
10 Greece
11 Israel
12 Austria
13 Luxembourg
14 U.K.
15 Hungary
16 Portugal
17 Netherlands
18 Germany
19 Latvia
20 Spain
21 Switzerland
22 Slovenia
23 Estonia
24 Poland
25 U.S.
26 Czech
27 South Korea
28 Chile
29 Japan
30 Ireland
31 Slovakia
32 Lithuania
23.6
14.9
18.7
(as percentage of GDP) Tax Revenues
(as percentage of GDP)
Compared with other countries, the scale of current tax revenues in Japan is relatively low as a percentage of GDP. As for expenditures, the scale of expenditure other than social security is relatively low in the world, but the scale of social security expenditure is at a medium level. It is necessary to continue to discuss the relationship between the increase in social security benefits due to aging population and the public burden as a whole.
Balance of Benefits and Burdens5
2
3
4
5
6
7
8
1
11
WageIncome
(Annual Income)
WageIncomeAmount
CalculatingWageIncome
Calculatinga TaxableIncomeAmount Calculated Tax
Amount Tax Amountto be Paid
Tax Credits
TaxableIncomeAmount
(Tax Base)
PersonalExemptions
EmploymentIncome
Exemption
(As of January 2020)
Personal Exemption, etc.
40％ 30％ 20% 10%
¥0.55 million¥0.1 million
¥0.08 million¥0.44 million¥1.1 million
¥1.95 million
− + + +
Employment Income Exemption (Note)
Up to ¥1.625 millionUp to ¥1.8 millionUp to ¥3.6 millionUp to ¥6.6 millionUp to ¥8.5 million
¥8.5 million or more
Basic Exemption...max. ¥0.48 millionSpouse Exemption...max. ¥0.38 million
Exemption for Dependent...¥0.38 millionetc.
Tax Rates
Up to ¥1.95 millionUp to ¥3.3 million
Up to ¥6.95 millionUp to ¥9 million
Up to ¥18 millionUp to ¥40 millionFrom ¥40 million
5%10%20%23%33%40%45%
(Note) For those with dependents under the age of 23 or dependents with special disabilities, etc., the amount is to be adjusted by the income amount adjustment deduction so to prevent increase in burden due to the reduction of salary income at or over 8.5 million where the exemption becomes constant. For those with both employment income and pensions, adjustment will be made by the income amount adjustment deduction so as not to increase the burden due to the transfer from employment income exemption/public pensions exemptions to basic exemptions which became effective in the revision made in FY2018.
Calculating
Tax Amount
In this way, income tax can require contribution according to income size and can be fine-tuned according to family structure and other personal circumstances.
Flow Chart for Calculation of Income Tax on Wage Earners
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
Income Tax1
1
2
3
4
5
6
7
8
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, and
distribution of revenue from a joint operation
trust, bond investment trust, and publicly
offered bond management investment trust
Separate
withholding
taxation 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 to
retirement such as a retirement allowance or
lump-sum pension
Income from cutting or transfer of timber that
has been owned for more than five years
Income arising from the transfer of assets
(including establishment of a superficies right
for 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 the
above categories, such as public pension, etc.
(e.g. national pension, employees' pension)
Amount
of
revenue
Acquisition costs
and expenses for
transfer of the
assets 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)
Separate
taxation
Separate taxation(divided-by-fiveand tax rateapplied, thenmultiplied-by-fivefor the total taxamount)
Comprehensive
taxation
(Note 2)
Comprehensive
taxation
(Note 2)
Comprehensive
taxation
(Note 2)
Comprehensivetaxation
Amount of income－Necessary expenses
Amount of income－Necessary expenses
Amount of revenue－
Employment income deduction (Note 3)
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 for
gaining 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 real estate agents' short-term transfer of land, etc. (business/miscellaneous (taxation suspended until March 31, 2023)); and income from futures transactions (business/capital gains/miscellanies).(Note 3) For those with dependents under the age of 23 or dependents with special disabilities, etc., the amount is to be adjusted by the income amount adjustment deduction so to prevent increase in burden due to the reduction of salary income at or over 8.5 million where the exemption becomes constant. For those with both employment income and pensions, adjustment will be made by the income amount adjustment deduction so as not to increase the burden due to the transfer from employment income exemption/public pensions exemptions to basic exemptions which became effective in the revision made in FY2018.
Category of Income2
12
2
3
4
5
6
7
8
1
(Note) The figures in square brackets ([ ]) will go into effect after 2020 (as for inhabitant’s taxes after FY2021)
Basic personal deductions
Special personal deductions
Personal(Basic)deduction
Persons qualifying for deductions
Spouse deduction
Deductionfor dependents
Deductionfor working students
Ordinary spousesqualifying for deduction
Ordinary dependentrelatives
Specified dependentrelativesElderly dependentrelatives(Addition for elderlyparents, etc.living with taxpayers)
(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
● 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 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
(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)
―
―
―
―
―
―
―
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
―
Deduction for Widows
1) Those who have been divorced, with dependent(s)
2) Those who have been widowed, that have not been remarried
* Excludes those that fall under a single parent
* De facto partners who are indicated as “Husband (unregistered) “ “Wife (unregistered)”
in the Resident’s Registration are to be excluded
Total income up to ¥5 million
Single Parent Exemption ● Those who are not currently married and have a child (total income up to 0.48 million) to
make a living together
* De facto partners who are indicated as “Husband (unregistered) “ “Wife (unregistered)” in the
Resident’s Registration are to be excluded
Total income up to ¥5 million
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
13
1
2
3
4
5
6
7
8
(Note) 1. Income Tax, Individual Resident Tax (income-based levy) and Special Reconstruction Income Tax are included for Japan. For the United States, Federal Income Tax and New York State Income Tax are included. Income Tax may be levied by the local government (county, city, etc.), however this is not taken into account in this document. Income Tax and Solidarity Surcharge (5.5% of the calculated income tax) are included for Germany. Income Tax and Social Security Related Taxes (General Social Tax, etc.: levied at a fixed rate (total of 9.7%) separately from the income tax) are included for France. In addition, additional income tax of 0 to 4% (3 levels) are levied on high-income earners as a measure from January 2012 until the budget deficit is resolved (however it is not included in the figure above.) When calculating the rate of burden in each country, only the generally applicable deductions and tax credits are taken into account, so the Earned Income Tax Credit or the Alternative Minimum Tax of the US, or Working Tax Credit (full benefit) of the UK is not considered. 2. For comparison, the model case is calculated as the first child being a 19 years old in school, and the second child as a 16 years old. 3. Japanese Currency Exchange Rate: 1 USD = 109 JPY, 1 GBP = 141 JPY, and 1 EUR = 121 JPY (base exchange rate and arbitrated exchange rate: applied in January 2020) .4. The figures in the table are the effective tax rates for each country for employment income of 10 million yen, 20 million yen, 30 million yen, 40 million yen, and 50 million yen. The fractions are rounded off.
(As of January 2020)
(JP)
(US)
JP
(JP)
(JP)
(JP)
(UK)
(UK)
(UK)(UK)
Japan
(UK)
(DE)(DE)(DE)
(DE)
(DE)(FR)
(FR)
(FR)
(FR)
(FR)
(US)
(US)
(US)
(US)
Germany
France
U.S.
U.K.
Employment Income（10,000 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%
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.
Changes in Income Tax Contributions4
(Ref.) International Comparison of Effective Tax Rate for Personal Income Taxation (A couple with 2 children, with one parent working)
14
2
3
4
5
6
7
8
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.
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
Inheritance Tax1
15
Learn about "Inheritance Tax" and "Gift Tax"4
1
2
3
4
5
6
7
8
0
5,000
10,000
15,000
20,000
25,000
30,000
0
6
12
18
24
30
36（％）
8.3
12.9
7,861
17,791
25,830
29,377
19,684
21,314
22,920 23,330
23,333 23,410
5.3
7.9 6.8 6.0
14.3
17.4
22.2
16.6
Inheritance tax revenues
Ratio of Inheritance tax payments to totaltaxable inherited property value
(¥100 million)
Share of Inheritance cases subject to inheritance tax(Annual number of inheritance tax cases/Annual number of deaths)
（Year）(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 is the amount of revised budget, and the data of FY 2020 is 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.
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 2020
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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5
6
7
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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.
In order to allow elderly people to transfer their properties to their children and grandchildren, the government has introduced an inheritance tax adjustment system under which gift receivers will pay a uniform 20% tax on gifts and make adjustments upon their late calculation of inheritance tax amounts.
Gift Tax2
17
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3
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6
7
8
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
300yen
Product producers
Taxpayers
Wholesalers
Taxpayers
Retailers
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.
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".
Consumption Tax1
18
5 Learn about "Consumption Tax"
2
3
4
5
6
7
8
1
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 fluctuations 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.
(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.
Consumption Tax Rate Hike2
(Source) Japan: "Population Estimates" by Ministry of Internal Affairs and Communications, and "Japanese Future Demographic Projection (April 2017)" by National Institute of Population and Social Security Research Other Countries: "World Population Prospects 2019" by United Nations
(Source) "The cost of Social Security Benefits in FY 2017" by National Institute of Population and Social Security Research
19
1
2
3
4
5
6
7
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
20
2
3
4
5
6
7
8
1
(National/Local, National accounts for ¥31.7 trillion)
Burdens set back to future generation ¥19.8 trillion
5% Increase of Consumption Tax
Enhancing Social Security ¥3.89 trillion (*1)
¥3.89 trillion
¥0.6 trillion
¥3.4 trillion
¥5.4 trillion (to reduce burdens set back to future generation)
4% of the Consumption Tax (excluding 1% Local Consumption Tax)
¥11.5 trillion
Consumption Tax Revenue ¥24.7 trillion
Social Security Expenditures (*2)¥44.5 trillion
Increased Expenditure due to Increased Consumption Tax Rate ¥0.6 trillion
50% National Burden for Basic Pension, etc. ¥3.4 trillion
¥36.7 trillion
All Allocated for Social Security(*1) Social security is enhanced (¥4.29 trillion) while utilizing the fiscal effect (¥-0.4▲trillion) by efficient and prioritized provision of benefits based on the Social Security Reform Program Law.
(*2) Costs required for the social security benefits under the established systems of pension, medical care, and long-term care and the measures to deal with the falling birthrate.(*3) The figure of consumption tax revenue and social security expenditures are based on the initial budget of FY2020, reflecting the impact of the reduced tax rate system.
Relationship between Social Security Expenses and Consumption Tax Revenue (original budget for FY2020)
20
25
30
EU Average Standard: 21.5% Food: 10.3%
0
5
10
15
(Remarks)
(%) (As of January 2020)
OECD Average Standard: 19.6% Food: 9.2% OECD
ASEAN +3 AverageStandard: 9.9% Food: 3.4%
ASEAN +3 AverageStandard: 9.9% Food: 3.4%
EC
Directive
(Standard Tax R
ate)E
C D
irective(R
educed tax rate)
1. As for Japan, 2.2% of the 10% (standard tax rate) and 1.76% of the 8% (reduced tax rate) are local consumption tax (local tax).2. In Canada, in addition to the federal Goods and Services Tax (value-added tax), Provincial Sales Tax (i.e. 8% in Ontario) is imposed in most provinces. 3.
4. Of the ASEAN member nations, Brunei does not have any taxes levied on sales transactions, Malaysia has abolished the value added tax in September 2018 and introduced Goods and Services Tax instead, and Sales Tax is levied in Myanmar as taxation system for sales transactions.
5. Of listed above, the shades in pink are the effective tax rate for food. Those with “0” indicate countries with zero tax rate levied on food. Those with “N” indicate countries where food is non-taxable. The range of food items subject to the reduced/zero tax rate or being non-taxable varies from country to country, and depending on the food item, it may be handled differently from above.
6. The EC Directive disagrees with the concept of zero tax rates or reduced tax rate of less than 5%. However, countries that had enforced such tax rates as of 1991 may continue to make them effective.
7. The OECD Average excludes Japan and the United States, where no VAT is applicable. The ASEAN +3 Average excludes Japan, Brunei, Malaysia, and Myanmar, where no VAT is applicable.
(Source) Interviews with embassies of each country, websites of the European Nations and governments of each country.
Austria
Belgium
Czech
Denm
arkE
stoniaFinlandFranceG
ermany
Greece
Hungary
IrelandItalyLatviaLithuaniaLuxem
bourgN
etherlandsP
olandP
ortugalS
lovakiaS
loveniaS
painS
weden
United K
ingdomB
ulgariaC
roatiaC
yprusM
altaR
omania
Australia
Canada
Chile
IcelandIsraelM
exicoN
ew Zealand
Norw
ayS
witzerland
TurkeyJapanS
outh Korea
China
Cam
bodiaIndonesiaLaosP
hilippinesS
ingaporeThailandV
ietnamTaiw
an
202021212121
2525
2020
2424
20201919
2424
2727
23232222
21212121
1717
212123232323
20202222
2121
2525
20202020
2525
19191818
1919
1010
55
1919
2424
171716161515
2525
7.77.7
1818
10101010
1313
1010101010101212
77 77
10101010
66
1515
2525
2020
1414
5.55.577
1313
1818
00
1010
21212121
33
99
5566
9.59.51010 10101212
00
2020
55 55
00
99
00 00
1919
1111
00 00
15151515
2.52.5
88 8899 1010
77 55 55
NNNNNNNNNNNN
Among the OECD member nations, in the United States, as opposed to value added tax for sales transactions, Sales Tax (local tax) is imposed bystates, counties, or cities (i.e. 8.875% as total of New York State and New York City).
<Reference> International Comparison of Value-added Tax Rates (standard rates and rates on food)
21
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2
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4
5
6
7
8
Along with the change of standard tax rate to 10%, a reduced tax rate system is introduced, which applies 8% to the purchase of food and beverages (excluding liquors and eating-out), to take care the impact on lower-income group.The benefit of the scheme is to lessen the burden on household budget through applying the reduced tax rate on the goods consumed by almost all the consumers on daily basis, such as food and beverages.
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)
Standard Tax Rate
Reduced Tax Rate
Eating-out
Where food and/or beverages are packed with goods other than food and /or
If the price of a packaged product without the consumpion tax is less than JPY
10,000 and the value of the food and/or beverages is 2/3 or more of the packaged
product, the reduced tax rate of 8% is applied.
Take out, delivery
Liquors ［defined in the Liquor Tax Act］
Packaged products
＝
Only supplies for human consumption
Foods and beverages［defined in the Food Labeling Act］
Supplies at paidnursing home,school catering
Pharmaceuticalproducts, quasi-pharmaceutical
products
Catering and Cooking Services Foods and drinks provided at fee-based home for the elderly, etc., school lunches, etc. Providing foods and drinks with services at locations specified by customers
① Serve foods and beverages at facilities designed for such services which provide tables, chairs and other suitable equipment② Provide services to let customers dine
Catering withserving/cooking
Reduced Tax Rate System for Consumption Tax3
10 ％（標準税率） (Reduction Tax Rate )
A catalogue of the images
○Food and drink (wine, food and drink)
○News (regular purchase contract concluded twice a week)（※）
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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 accounting
Transfer to certain reservesEntertainment expense abovea certain levelDonations, etc.
6 Learn about "Corporation Tax"
Corporation tax amount is calculated by multiplying taxable income by the tax rate and subtracting tax credits.
Corporation Tax1The corporation tax is levied on net income earnings 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, as in the diagram below.)
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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, California State rate for the United States, the national average for Germany and Ontario Provincial rate for Canada. If part of tax on corporate income is included in deductible expenses, 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).(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%
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.
Growth-oriented Corporation Tax Reform2
(As of January 1, 2020)
Japan U.K.ItalyCanadaU.S.FranceGermany
29.74% 29.90% 28.00% 27.98% 26.50% 24.00% 19.00%
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International Taxation Systems1
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 fiscal 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
●
●
7 Learn about "International Taxation"
A recent major international effort is the BEPS (Base Erosion and Profit Shifting) Project. In order to achieve a level playing field, the Project aims to prevent multinational enterprises from engaging in BEPS. The OECD has been taking the lead of the Project collaborating with countries including Japan. The major nations endorsed the package of measures developed under the Project in 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.
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 profits are transferred to a country with a lower tax rate.)
The shifted profit is taxed in the country with the lower tax rate, allowing
the related company to reduce tax burden.
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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 holds 76 taxation treaties with 139 countries and regions as of June 1, 2020.
Japan's Tax Convention Network
《76 conventions, etc. applicable to 139 jurisdictions; as of June 1, 2020》(see notes 1 and 2)
New Zealand MalaysiaPakistan Brunei Samoa
Niue
Vanuatu Mongolia
Marshall Islands
Nauru
Cook Islands
Asia and Pacific(26) Philippines
Sri Lanka （※ ） Thailand Bangladesh Vietnam Macao（※ ）
Fiji Hong Kong
(No bilateral convention with Japan)
Middle East(9)
Oman
(No bilateral convention with Japan)
Russia and New Independent States(12)
（※） （※）
（※）（※）
（※）
South AfricaAfrica(13)
EgyptZambia
(No bilateral convention with Japan)
カメルーン モーリシャスセーシェル モロッコ
Europe(45)
（※）
（※）（※）
（※）
IcelandIrelandUnited KingdomItalyEstoniaAustriaNetherlandsCroatiaSwitzerlandSwedenSpainSlovakiaSloveniaCzechDenmarkGermany(No bilateral convention with Japan)AlbaniaAndorraNorth MacedoniaCyprusGreeceGreenland
NorwayHungaryFinlandFranceBulgariaBelgiumPortugalPolandLatviaLithuaniaLuxemburgRomaniaGuernsey Jersey Isle of Man Liechtenstein
San MarinoGibraltarSerbiaFaroe IslandsMaltaMonacoMontenegro
Uzbekistan
KyrgyzTajikistanTurkmenistan
Belarus
America and the Caribbean(34)
United StatesEcuadorCanadaChileBrazilMexicoCayman Islands British Virgin IslandsPanamaBahamas Bermuda(No bilateral convention with Japan)ArgentinaArubaAnguillaAntigua and BarbudaUruguayEl SalvadorCuracaoGuatemalaGrenadaCosta RicaColombiaJamaicaSaint Christopher and NevisSaint Vincent and the GrenadinesSint MaartenSaint LuciaTurks and Caicos IslandsDominican RepublicDominicaBarbadosBelizePeruMontserrat
Taiwan (see note 3)
Bahrain Lebanon
United Arab Emirates KuwaitIsrael Saudi Arabia
TurkeyQatar
UgandaTunisiaGhanaNigeriaCabo Verde
Senegal
Cameroon MauritiusMoroccoSeychelles
China
SingaporeIndiaIndonesiaAustraliaKorea
AzerbaijanArmeniaUkraine
KazakhstanGeorgia
MoldovaRussia
Tax Conventions2
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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 finance
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 financeIn 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 industries and businesses can be easily 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
This report may be viewed from the URL below or the QR code on the right.https://www.cao.go.jp/zei-cho/shimon/1zen28kai1_2.pdf
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See documents on tax system reforms and types of tax systems (illustrated).
Tax Policy Website
Ministry of Finance, Japanor1
step
2step
and go to the Tax Policy Website
The latest updates of Tax Policy will be delivered, please take this chance and register now.(Back issues are also available.)
Tax Policy E-mail Magazine
You can obtain information on the background of the Consumption Tax rate hike and the Reduced Tax Rate System.
Consumption Tax rate hike Website
https://www.mof.go.jp/tax_policy/publication/mail_magazine/index.htm
Tax Policy
https://www.mof.go.jp
Learning materials for elementary, junior and high school students are available.
Learning Session for Tax (National Tax Agency, Japan Website)
1
https://www.nta.go.jp/taxes/kids/index.htm
step
2step
https://www.mof.go.jp
Learning Session for Taxor
Ministry of Finance, Japanor
Tax Policy E-mail Magazineor Search
Search
Search
Consumption Tax Rate Hike and go to the Consumption Tax rate hike Website
Search
