Want To Know How Taxes in Japan Work? I’ll Tell You!
Every once in a while I get random questions from followers on Twitter, Facebook, or Instagram about what it’s like to live in Japan, including mundane subjects like paying taxes. Since taxes in Japan can be interesting, I thought I’d post about that today.
Income Taxes in Japan
As with people in other countries, residents of Japan (including me) pay various taxes. This includes an income tax, a “consumption” tax — similar to sales tax or VAT — on purchases (currently 8%), plus various other taxes, such as the Tohoku Reconstruction Tax to help pay for the post-tsunami recovery in the aftermath of the 2011 earthquake and tsunami.
One of the themes of Japan is that they usually take their cues from the U.S., and as a result the tax system is quite similar to America’s, with income tax rates from 23% to 45%. There’s an additional 10% prefectural-and-local tax to pay, too, bringing the top marginal rate to 55%. Interestingly, Japan made their version of the “Donald Trump” tax cut several years ago, aggressively lowering tax rates for corporations to remain competitive with other countries in Asia, though they raised the tax rates for individuals to make up the difference. I’m often amused when Prime Minister Shinzo Abe is considered to be “ultra-conservative” yet he raised taxes on the rich to a very high level.
One long-term concern everyone has is about what will happen to taxes as the country’s population falls. Soon Japan is scheduled to bump its consumption tax (like VAT) from the current 8% up to 10%, which Japanese taxpayers know is laughably low compared to most VAT countries. Hopefully, other taxes won’t go up too quickly.
Tax Write-Offs and Deductions
Naturally, finding as many deductions as possible is of supreme importance to any taxpayer. I was amused to see this topic brought up in the excellent anime A Sister’s All You Need, which featured accountant Ashley Ono helping the main character deduct his imouto anime figures and his ecchi games as business expenses.
While most features of the tax codes between Japan and the U.S. are similar, there are some cultural differences. Since automobiles are important to the Japanese economy, companies can buy them pretty much without limitation as tax write-offs. The president of the original JAST, my old business partner, had a nice collection of high-end BMWs purchased to reduce his taxes. One of the few nice things for me as the owner of J-List is that I can buy my personal automobile through the company, something that’d be very hard to do under U.S. tax law (unless it was a specific type of work-related vehicle).
Unlike Americans, Japanese people save “too much,” so programs like 401(k) accounts are rare here. In 2017, the average household in Japan had around $160,000 in cash saved, nearly always sitting in a bank account earning 0.001% interest.
Furusato Nozei
Leave it to Japan to get creative about something like paying taxes. Recently at my house, we’ve gotten tons of boxes filled with interesting products, everything from delicious ham and camembert cheese from Hokkaido to Orion beer from Okinawa, thanks to the Hometown Tax Donation Program, or Furusato Nozei in Japanese. Basically, if I’m going to pay tax anyway, I can elect to pay my tax to some interesting small town somewhere in Japan, rather than to my local prefecture. In return, I can get delicious products from their corner of the country, which is “gifted” to me, which is how the system works. It’s a fun and delicious system that helps redistribute income from cities to the countryside and allows all residents to feel more connected to the whole country. On the other hand, the furusato nozei system is so popular, people start abusing it, and large cities like Tokyo start to make noise about the loss of tax revenue to them.
Tax Evasion Laws in Japan
Every once in a while, some creator of anime or manga gets in trouble with the tax authorities for not reporting income properly, like when light novel writer Mamare Touno got in trouble for non-payment of $250,000 of taxes on income from his Log Horizon novels. The most famous of these incidents happened when Evangelion director Hideki Anno company president Takeshi Sawamura got busted for hiding income earned from Evangelion back in the 1990s. There’s a long interview with American Michael House, who worked for Gainax in those days, talking about it.
Well, thanks for reading this feature post on taxes in Japan. If you have any further questions, ask them below!
