| Report Submitted to the Prime Minister Mori by the Government Tax Commission July 14, 2000
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| This paper is informal translation of the press material prepared by the Ministry of Finance．
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| The Current Situation and Issues Regarding the Japanese Taxation System - Working for Participation and Making Choices Towards the 21st Century
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Participation and Making Choices by the Japanese People | ||
| ・ | From the perspective of the structural changes in the socioeconomy, including the declining birthrate, aging society and globalization, it is essential to fundamentally review the taxation system in order to make it suitable for the 21st century. | |
| ・ | It will be even more important in the future for each person, as part of society, to see the taxation system as their own issue, keeping future generations in mind while participating in discussions on the taxation system, and making a responsible choice. | |
| ・ | This report, entitled "The Current Situation and Issues Regarding the Japanese Taxation System," contains material necessary for making choices, and is to be widely distributed to support participation and decision-making by the Japanese people.
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| The First "White Paper" on the Japanese Taxation System | ||
| ・ | This paper, which is presented at the end of the 20th century, summarizes the recent taxation reforms, places the current situation and issues in order, and suggests various perspectives to consider regarding the taxation system in the future. | |
| ・ | It incorporates, in relation to public services, a wide range of issues, from fundamental matters such as "what is tax" to issues for various kinds of tax. For each item of tax, many diagrams are inserted and the fundamental structure is discussed in detail. The White Paper is nearly 400 pages long. | |
| ・ | It also covers, in relation to the taxation system, the current situation and issues regarding public finances, discussions on taxation and social security, decentralization of government authority and sources of tax revenue for local governments. | |
| ・ | It also compiles for the first time various perspectives on new fields, such as international taxation and the relationship between the environment and taxation.
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The Significance and Role of Taxation | ||
| ・ | Public services and taxes are respectively the benefits and burdens that all Japanese people enjoy and bear, in other words, they are two sides of one coin. | |
| ・ | These benefits and burdens should be enjoyed and borne by all Japanese people. | |
| ・ | The basic function of taxes is to secure funds for public services. | |
| ・ | Taxes should be widely and equally shared by each member of society.
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| The Fundamental Principles of Taxation and its Relation with the Socioeconomy | ||
| ・ | Taxation determines who pays taxes and how these taxes are to be paid. | |
| ・ | The fundamental taxation principles of fairness, neutrality and simplicity have become increasingly important when considering taxation, and securing fairness among the different generations is also becoming more important.
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| Structural Changes in the Socioeconomy | ||
| ・ | It is necessary to increase the level of activity in the economy by promoting economic structural reforms, including deregulation. | |
| ・ | From the perspective of building a "fair and vigorous society" in the 21st century, the taxation system should be reviewed based on the principles of fairness, neutrality and simplicity, by responding to the following socioeconomic changes: | |
| - | the shrinking population with the declining birthrate and aging society | |
| - | internationalization, computerization and the diversification of corporate activity | |
| - | the diversification of financial transactions and a shift towards a stock economy | |
| - | the diversification of lifestyles | |
| - | trends in the distribution of income
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| Current Fiscal State and Challenges to Overcome | ||
| ・ | Currently, the Japanese public services are at a high standard, similar to those in European countries, and the financial burden is at a low level, below that in the USA. This gap results in a huge budgetary deficit. | |
| ・ | It is necessary to conduct fiscal structural reform from a wide perspective. These reform efforts should be implemented once the Japanese economy is back on the path towards a full-scale recovery, taking care not to miss the right opportunity, and to avoid passing the burden on to future generations. | |
| ・ | It is very difficult to considerably improve the huge gap between revenue and expenses by revenue increases in line with economic recovery alone. | |
| (Social Security and Decentralization) | ||
| ・ | With regard to increasing social security benefits and the corresponding burden, how to combine social security contributions and taxes concerns the fundamentals of the social security system, and thus requires public discussion. | |
| ・ | With regard to securing and improving of the source of local tax revenues, necessary measures should be taken in view of the fact that the finances of local governments, such as subsidies and local allocation tax, are facing new situations.
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| Choices to be Made towards a Fundamental Reform of the Taxation System | ||
| ・ | With regard to the combination of benefits and costs of public services, choices are to be made as to whether the benefit or the cost or both should be reviewed. | |
| ・ | Based on the fundamental taxation principles of fairness, neutrality and simplicity, it is necessary to review whether or not a balance has been kept between taxation and the society/economy, and then, to carry out the necessary reforms. | |
| ・ | With regard to the various issues in various kinds of taxes, it is necessary to specify what kind of review should be made on them. | |
| ・ | Based on the viewpoint of sharing social expenses in a fair manner, while taking advantage of the functions and roles of income taxation, consumption taxation and property taxation, Japanese people should take responsibility for decisions towards a better taxation system for the society and economy in the 21st century. To this end, a fundamental tax reform towards the establishment of "a fair and vigorous society" is essential.
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Income Taxation (individual) | ||
| ・ | As a result of a series of tax reforms and tax cuts, the level of Japanese personal income tax has been lowered more than any other country. For the future, discussions should be held towards the reestablishment of personal income tax as a key tax as well as its role and function. | |
| ・ | Decisions over the level of minimum taxable income should be made from the fundamental aspect that expenses for public services are shared widely by the people. Furthermore, with respect to various allowances and deductions which comprise the minimum taxable income, consideration should also be given to responding to socioeconomic structural changes. | |
| ・ | Tax allowances for spouses should be reviewed in view of the increase in the number of working women as well as the spread of gender equality in societies. | |
| ・ | Employment income deduction should be reviewed in such a way that greater emphasis is placed on the idea that the deduction is an approximate amount for employment expenses. In the course of the review, in line with the review of deductions for employment income, it would be a good idea to encourage wage earners to report their income tax returns themselves. | |
| ・ | Pension taxation should be reviewed so that it allocates the appropriate burden through the contribution, investment and granting of pensions in order to promote fairness, neutrality and simplicity, as well as fairness in sharing the burden among different generations.
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| Corporate Taxation | ||
| ・ | As the corporate tax rate has already been reduced to the level of other countries, there is no room for further reductions. | |
| ・ | Because corporate taxation has bearings on the improvement of corporate vitality as well as overall economic efficiency, a fair, neutral and broad taxation on corporations is vital for retaining Japanese socioeconomic vitality. | |
| ・ | In order to respond to such socioeconomic structural changes as globalization, the introduction of taxation system on split of corporations and a consolidated taxation system are required. | |
| ・ | In addition to streamlining and rationalizing special taxation measures, it is important to make efforts to optimize the taxable base. | |
| ・ | The early introduction of a corporate taxation system based on the size of the business is necessary in view of the economic conditions, etc. Furthemore, for the sake of its introduction, local governments should actively take actions necessary for obtaining the understanding of taxpayers (i.e., corporations).
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| Consumption Taxation | ||
| ・ | In order to retain socioeconomic vitality in the face of a rapidly aging society with a decreasing number of children, the cost of public services should be widely and equally shared. To this end, it is important to ensure fairness in the responsibility for and burden of taxation on different generations. It is also necessary to establish a taxation system with a stable tax revenue, thus, the role of consumption taxation is taking on an increased importance. | |
| ・ | Seeking an ideal status of the Japanese taxation system, including the consumption tax, is an issue that should be considered based on public discussions, while taking into account the necessity that the present generation bears its fair share of the costs of public services equally and extensively so as not to pass it on to future generations. | |
| ・ | With regard to the special measures and tax credit for the consumption tax on purchase of small businesses, consideration should be given based on the actual management state of businesses and from the aspect of ensuring fairness and transparency in the taxation system. | |
| ・ | For the price indication, from the aspect of ensuring the consumers' benefit, it is appropriate to promulgate "the total price indication method" as it has been promoted in Europe. | |
| ・ | For certain earmarked taxes, consideration should be given from a wide range of perspectives, including the fiscal system for the allocation of tax revenues.
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| Property Taxation | ||
| ・ | Property taxes play an important role in establishing a fair taxation system as well as ensuring a stable tax revenue. | |
| ・ | The inheritance tax should be reviewed and considered from a wide range of aspects; for example, in conjunction with the fundamental review of personal income tax, it is necessary to review the structure of tax rates including the reduction of the maximum rate, and also to expand the scope of taxpayers in view of the tendency of economic stock as well as an aging society with a decreasing birthrate. | |
| ・ | Various discussions are underway over the gift tax, including the necessity of the early transfer of property to younger or middle-aged generations. Consideration should be given to the gift tax in conjunction with the fundamental review of the inheritance tax.
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| International Taxation | ||
| ・ | Along with the globalization of economic activities and the diversification of corporate management, the issue of international taxation, that is, eliminating international double taxation while ensuring each country's right for taxation, is becoming increasingly important. | |
| ・ | International actions at the OECD, etc, are important concerning "harmful tax competition in taxation".
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| Taxpayer Identification Number | ||
| ・ | Taxpayer identification numbers are expected to contribute to the realization of an appropriate and fair taxation, the improvement of the efficiency of tax administration, and also the strengthening of taxpayers' trust in the taxation system. On the other hand, there remains several issues that need to be continuously considered, such as the numbering method of taxpayers, the necessary cost of introduction, anticipated effects, and privacy protection issues. | |
| ・ | Because taxpayer identification numbers would largely have an influence on the overall lifestyle of the people, their understanding and cooperation are indispensable for its introduction. While taking into account the changes in the situation relating to the system, it is necessary to continue giving the necessary consideration for its introduction.
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| Electronic Commerce and Taxation | ||
| ・ | The taxational principles of fairness, neutrality and simplicity should also be applied to electronic commerce. | |
| ・ | With regard to issues of how to monitor transactions on the internet for the purpose of taxation,and also the issues in the areas of income and consumption taxation of cross-boarder transactions, consideration is being given at the OECD．
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| Taxation and the Environmental Issues | ||
| ・ | It is necessary to clarify the status of the necessary taxational measures for the environment, and also, to obtain the people's understanding and cooperation. | |
| ・ | For the future, while monitoring both the domestic and international trends in discussions over environmental issues, considerations should be continuously given from a wide range of perspectives, based on the Polluter Pays Principle (PPP).
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| Administration | ||
| ・ | In order to realize fair taxation, and at that same time, ensure the people's trust in the entire taxation system, appropriate administrative actions are important. | |
| ・ | For example, the reference and information systems should be improved by giving attention to the introduction of the electronic filing system, while strengthening cooperation among government agencies, etc. | |