What was decided, when, and by whom

The FY2011 Tax Reform Outline was decided by the government and published on December 16, 2010. Beneath the original title, only that date appears. Its role is described in the preamble.

The FY2011 Tax Reform Outline below brings together accumulated discussions centered on the Tax Commission. It advances reforms to secure revenue for a mutually supportive society and build a tax system suited to structural economic and social changes.

Chapter 1 identifies four pillars: economic revitalization to overcome deflation and support employment; correcting widening and entrenched inequality; reform from taxpayers' and citizens' perspectives; and local tax reform to strengthen revenues and resident self-government. A feature of this year is the coexistence of measures that reduce and increase burdens. For how to read recent outlines, see Key points of the FY2026 tax system revision outline Please also see.

Main pillars of the outline

The outline has three chapters.

Chapter 3 specifies amounts and tax rates. The following highlights its major measures. The preceding year's FY 2010 Tax Reform Outline and the following year's FY2012 Tax Reform Outline shows the priorities of this year's changes.

Introducing an Employment Income Deduction Cap

The outline describes the employment income deduction as half an estimated work-expense allowance and half a special adjustment relative to other income, and seeks to correct excessive deductions. The existing deduction rises with employment receipts without a ceiling. A maximum of JPY2.45 million is proposed where annual employment receipts exceed JPY15 million.

Deductions for officers' remuneration are further reduced. Where annual remuneration for officers' duties exceeds JPY20 million, the employment income deduction is as follows.

The specified expense deduction also becomes easier to use, adding qualification costs for professions such as attorneys and tax accountants and necessary work expenses. These changes are proposed for income tax from 2012 and individual inhabitant tax from FY2013.

Retirement Pay for Officers with Five Years' Service or Less

Retirement income is normally half the amount remaining after the retirement income deduction. The outline notes cases of officers appointed for short terms who defer salary into large retirement payments, and proposes abolishing the halving rule for officers and similar persons with five years' service or less.

Narrowing the Adult Dependent Deduction

The dependent deduction for relatives aged at least 23 and under 70 is narrowed. The JPY380,000 deduction remains for dependents aged 65 to under 70, people with disabilities, certified care recipients, students, and similar persons, or where the supporting taxpayer's total income is JPY4 million or less. Above JPY4 million, a transitional adjustment subtracts 38% of the excess income from the JPY380,000 deduction.

Lowering the Inheritance Tax Basic Deduction and Easing Gift Tax

The outline states that, despite continuing land price declines, the basic deduction remained unchanged, reducing the proportion of deaths resulting in taxable inheritances to approximately 4%. Principal changes are as follows.

Rates up to JPY100 million remain unchanged. Relief measures also increase the minor's credit from JPY60,000 to JPY100,000 per year until age 20, and the disability credit from JPY60,000 to JPY100,000 per year until age 85. These are proposed to apply to property acquired by inheritance or bequest from April 1, 2011.

Gift tax, conversely, is eased. For gifts from lineal ascendants to people aged at least 20, the existing 50% rate on amounts over JPY10 million is replaced by 40% up to JPY15 million, 45% up to JPY30 million, 50% up to JPY45 million, and 55% above JPY45 million. Settlement-at-inheritance taxation also adds grandchildren aged at least 20 and lowers the donor age requirement from 65 to 60.

Lowering Corporation Tax Rates and Broadening the Tax Base

The combined national and local effective corporate tax rate is to fall by five percentage points, with the national corporation tax rate reduced from 30% to 25.5%. For small and medium corporations, the 18% reduced rate expiring at the end of FY2010 is reduced to 15%. Application is proposed for fiscal years beginning on or after April 1, 2011.

The tax base expands alongside the rate reduction. For depreciable assets acquired from April 1, 2011, declining-balance depreciation rates become 2.0 times straight-line rates, rather than 2.5 times. Loss carryforward deductions are limited to 80% of pre-deduction income, while the carryforward period extends from seven to nine years. Existing deduction limits remain for small and medium corporations, including ordinary corporations with capital or contributions of JPY100 million or less.

New employment and investment incentives are also introduced. A corporation that files an employment promotion plan and obtains confirmation that its year-end general employment insurance coverage count rose by at least 10% and at least five people, or two for SMEs and similar entities, may credit JPY200,000 per additional employee against corporation tax. The limit is 10% of current-year corporation tax, or 20% for SMEs and similar entities.

A Taxpayer Rights Charter and Longer Correction Claim Periods

Tax administration is another major topic. The purpose clause of the Act on General Rules for National Taxes is to clarify protection of taxpayers' rights and interests, while procedures such as advance audit notices and explanations after audits are consolidated in that Act. A Taxpayer Rights Charter is proposed for publication on January 1, 2012.

Procedures for recovering overpaid tax also change. To eliminate informal petitions seeking tax reductions outside statutory procedures, the period for taxpayer correction claims extends from one to five years. The authorities' period for increasing assessments also extends from three to five years where previously three. This is proposed for national taxes whose statutory filing deadlines or similar dates fall on or after April 1, 2011. Reasons for administrative dispositions are generally to be provided for all dispositions from January 2012.

Introducing a Global Warming Countermeasure Tax

A carbon-emissions-based surcharge is added to petroleum and coal tax, which covers all fossil fuels. The surcharge is JPY760 per kiloliter for crude oil and petroleum products, JPY780 per tonne for gaseous hydrocarbons, and JPY670 per tonne for coal. Implementation is proposed from October 1, 2011, with staged rate increases.

To determine if it relates to you

• If employment receipts exceed JPY15 million, see individual income taxation. A JPY2.45 million deduction cap is proposed.
• Corporate officers should review the officer remuneration provisions in the same section. Deductions taper above JPY20 million, and retirement pay treatment differs according to whether service exceeds five years.
• If you support relatives aged at least 23 and under 70, see the adult dependent deduction revision. Both your total income and the dependent's circumstances affect the outcome.
• If considering inheritance or lifetime gifts, see asset taxation. The proposals generally increase inheritance tax burdens and reduce gift tax burdens.
• Company managers should see corporate taxation. Rate cuts and base broadening occur together, with separate treatment for small and medium corporations.
• If you discover an overpayment in a past return, see tax administration. The correction claim period extends from one to five years.
• If you donate to certified NPOs or public interest incorporated associations and similar entities, see civic public-interest taxation. An elective tax credit of 40% of donations above JPY2,000 is introduced as an alternative to an income deduction.

Source

• FY2011 Tax Reform Outline (December 16, 2010)