Stuck in the Edo Period: Why the Global Notion of “Taxpayers as Customers” Hasn’t Taken Root in Japan.

“No need to file a tax return, it’s a hassle!”

“We will abolish the year-end tax adjustment and have all citizens file their tax returns.”

Digital Minister Taro Kono was again under fire on social networking sites when he suddenly made this appeal at the announcement of his pledge for the LDP presidential election.

When Finance Minister Shunichi Suzuki said tax payment is at the discretion of lawmakers over the LDP faction’s slush fund case, freelancers and self-employed people posted “#Boycott tax returns” in rapid succession. However, it is probably those who receive salaries from companies, such as company employees, part-timers, and part-time workers, who responded to Minister Kono’s pledge by saying, “Filing income tax returns is such a hassle.

For salaried workers, income tax and resident tax are deducted from their monthly wages and bonuses, and the employer handles the year-end tax adjustment, completing the tax payment process for both income and resident taxes. As a result, most salaried workers do not need to file a tax return themselves.

Thus, salaried workers may find it difficult to be conscious of the taxes they are paying.

 

“Japan is a welfare state, and taxes are the burden that citizens bear to receive social security. However, it is unfortunate that the public’s interest in what taxes they are paying and how those taxes are being used is rather low,” points out Tomoko Hiraishi, a tax accountant and secretary-general of the TC Forum (a group working to establish a taxpayer’s bill of rights). The TC Forum is a voluntary organization formed in 1993 by tax accountants, lawyers, researchers, and small business groups across Japan, and has been working for nearly 30 years to draft a “Taxpayer’s Bill of Rights” to protect taxpayer rights.

Only in Japan is there a year-end adjustment?

Hiraishi continues:

“One reason for the lack of interest is the ‘year-end tax adjustment.’ Under this system, it’s difficult to see how taxes are calculated and how much one is actually paying. I wouldn’t say this applies to all salaried workers, but generally, I feel the level of understanding is low.

However, this is more due to the government, which, when introducing the postwar self-assessment tax system, made it mandatory for employers to handle tax payments and year-end adjustments.”

Is the year-end tax adjustment system something found in other countries?

“I don’t think there are other countries where employers are required to handle year-end tax adjustments for employees, like in Japan.

In Germany, it seems that employers paying more than 10 employees are required to perform year-end adjustments, but I’ve heard that it’s optional and employees can choose not to undergo it.

The U.S. doesn’t have a year-end adjustment system; it’s a self-assessment system. Salaried workers there also file their own tax returns, so I believe their tax awareness is much higher.”

“The right to file a tax return should be granted to those who wish to file their own taxes.”

On its official website, the TC Forum lists one of its proposals for establishing taxpayer rights as, “The right to file tax returns should be widely recognized for more than 40 million salaried workers.” Does this align with Minister Kono’s proposal to have all citizens file tax returns?

“At TC Forum, we believe that an option system should be introduced for the year-end tax adjustment. Even if salaried workers wish to file their own tax returns, the current system doesn’t allow them to do so.

The year-end adjustment requires submitting forms for deductions like the dependent deduction and insurance premium deduction, and salaried workers must submit these documents to their company.

For example, a person who has divorced or lost their spouse and has not remarried can receive the widow/widower deduction, and someone with a disabled family member can claim a disability deduction. Even though these are quite personal circumstances, you have to report them to your company in order to receive these deductions. From a privacy perspective, how is that acceptable?

Considering that, I believe we should recognize the right of individuals who want to file their own tax returns.”

Minister Kono has explained his stance on the abolition of the year-end adjustment, as announced in his pledge, on his official website and on X (formerly Twitter).

According to him, under this plan, businesses would send salary and other income data to a unified national digital portal each time they pay employees. This portal would consolidate individual income, insurance premiums, income tax, and local taxes using the My Number system, and display the information on the My Number Portal. This data would then be automatically input into e-Tax or eLTAX via the My Number Portal.

“It’s impossible to just push a button and make it happen!”

At a press conference on the 5th, he stated, 

“Ultimately, all of your tax return forms will be automatically filled out, and you can just take a look at the numbers and press a button to complete your tax return.” He also mentioned, “An environment will be created where we keep a close eye on how taxes are used.”

However, many citizens seem to believe that Minister Kono’s aim is more about promoting the use of My Number cards than enhancing tax awareness.

“For example, when applying for a medical expense deduction, it’s said that the My Number Portal and e-Tax are linked, so medical expenses for the entire year can be automatically filled in on the tax return. But the medical expense deduction isn’t limited to just the medical fees paid at hospitals and pharmacies.

Expenses for out-of-pocket medical treatments, transportation costs for visits (like taxi fares), and costs for over-the-counter medicines and diapers are also included.

However, the My Number health insurance card is linked only to insured medical treatment, so other expenses do not reflect on the My Number Portal. Whether it will be possible to automatically include all these detailed individual circumstances remains uncertain.

If Minister Kono intends to implement the proposed tax return system, citizens will need a considerable preparation period. Just like with the My Number health insurance card and the invoice system, I believe that forcibly setting deadlines and starting initiatives without the public’s understanding infringes upon taxpayer rights.”

Tax audits and collections without prior notice… Japan is the only country without a “Taxpayer’s Bill of Rights.”

While paying taxes is stipulated as a duty in the Constitution, there is no mention of rights. How should we understand taxpayer rights?

“‘Taxpayer rights’ does not mean that we, as taxpayers, should assert our rights. What’s important is that rights are properly protected.

In the United States, where taxpayers are the main focus, tax authorities treat taxpayers as customers with respect. Similarly, South Korea’s Taxpayer Bill of Rights also positions taxpayers as customers. The idea of taxpayers being the main actors is becoming a global standard.

However, in Japan, the opposite is true; the main focus is not on the taxpayer but on the tax authority. The image of taxes being something that is taken by those in power has persisted from the Edo period through the Meiji era to modern times, and those collecting taxes still carry this mindset.”

Since the establishment of the ‘Taxpayer Charter’ in France in 1975, Western countries have been advancing systems to protect taxpayer rights, and this movement has spread to countries in Asia and Africa as well.

According to the TC Forum, Japan is the only member of the OECD (Organisation for Economic Co-operation and Development) that lacks a Taxpayer Bill of Rights or a law protecting taxpayer rights.

“The TC Forum has visited countries like the United States, Canada, and France, which have taxpayer rights charters, and received recommendations from the OECD to establish a charter. In 1994, we published the ‘Basic Law Outline for Taxpayer Rights’ and the ‘Tax Administration Procedure Law Outline.’ Nearly 30 years have passed, but Japan still lacks a Taxpayer Bill of Rights.

The reason a charter hasn’t been established is that the Ministry of Finance is reluctant to recognize taxpayer rights. In fact, it doesn’t recognize them, which is why tax audits and collections are still being conducted without prior notice.”

 

“Penalties have been greatly enhanced.”

Seventeen years after the TC Forum’s proposal for the “Tax Administration Procedure Law,” tax audit procedures were codified in 2011 under the Democratic Party administration with amendments to the “National Tax General Law.” However, Hiraishi points out that this revised law does not contain provisions to protect taxpayer rights.

“The revised National Tax General Law clearly states that prior notification is required. However, this prior notification is merely a ‘principle.’ For example, if there is a risk of fleeing or hiding records, and if the tax office head acknowledges that, exceptions have been created that allow audits to be conducted without prior notification.

Over the last ten years or so, penalties have been significantly strengthened. Japan is moving in a direction that tightens restrictions, in contrast to Western countries. That’s how I feel.”

Despite having a relatively low tax burden rate compared to other developed nations, Japan is said to have a much higher sense of tax burden among its citizens than the high-burden Nordic countries. It is unacceptable for awareness of taxes and understanding of taxpayer rights to remain low.

“In Japan, lower-income individuals face a greater tax and social insurance burden. Unless citizens raise their voices against what they find unreasonable, neither the national policies nor the tax system will change.

We at the TC Forum have not given up on the realization of a Taxpayer Bill of Rights. Even with the new regulations for tax audit procedures, audits continue to be conducted without prior notification, just as before.

A rights charter is necessary to change the stance of the tax authorities toward taxpayers. This fall, we plan to once again appeal to members of the Diet’s Financial Affairs Committee and the Finance and Financial Services Committee for the establishment of the charter.”

Kyoko Hiraishi is a tax accountant and has served as the secretary-general of the TC Forum since 2013. Her publications include *A Quick Guide to the 2019 Consumption Tax Reform for Small Businesses and Sole Proprietors* and *Practical Consumption Tax for Small Companies and Sole Proprietors: Latest Edition* (both published by Japan Business Publishers), as well as *Understanding Receipts and Invoices That Can Be Written Off! Using ×* (published by Kanki Publishing).