5. Japanese Fixed Property Tax1
Japan has a three-tier governmental system that consists of the national government, 47
prefectures (middle-level governments equivalent to States in US) and 3230 municipalities (cities, towns and villages).
Under the Japanese local tax system, the Local Tax Law at the national level gives municipalities the legal basis to levy various local taxes including the fixed property tax.
Municipalities levy the fixed property tax on (a) land, (b) houses and buildings, and
( c) tangible business assets by passing their own by-laws in accordance with the Local
Tax Law.
Outline of Fixed Property Tax as of 1999
Tax Authority
Municipalities (cities, towns and villages) assess, levy and
collect the tax.
As for 23 special wards of Tokyo, the tax is levied by the Tokyo Metropolitan Government
Object of Taxation
Land, buildings and tangible business assets
Land:
177 million plots
Building:
59 million buildings
Taxpayer
Owners of land, buildings and depreciable property
Land:
37 million persons
Buildings:
35 million persons
Tangible business assets: 4 million persons
Tax Base
Value (fair market value) as of January 1
Land and buildings are re-assessed every three years
Tax Rate
Standard tax rate: 1.4%
Maximum tax rate: 2.1%
Tax Revenue
9.257 trillion yen as of 1999
45.3% of total municipal taxes
1
Prepared by Toshi Kitazato, Vice-Commissioner, Fire and Disaster Management Agency,
Ministry of Public Management, Home Affairs, Posts and Telecommunications,Tokyo.
1
Revenue
The yield of Japanese fixed property tax is as follows. Fixed property tax is levied on
(a) land, (b) houses and buildings, and (c) tangible business assets.
(trillion)
Total Municipal Taxes (a)
Fixed Property Tax (b)
(b)/(a) %
1999
20.439
9.257
45.3
1998
20. 602
9.041
43.9
1997
21.207
8.760
41.3
1996
20.502
8.749
42.7
1995
19.766
8.372
42.4
As for taxes related to land, there is the city planning tax for municipalities and the real
property acquisition tax for prefectures, the yields of which are as follows:
(a) City Planning Tax is levied by 789 municipalities for the purpose of city planning
works. The tax base is the same as fixed property tax. Municipalities can set the tax
rate as high as 0.3 %.
( trillion yen)
Total Municipal Taxes (a)
1999
20.439
City Planning Tax (b)
(b)/(a) %
1.374
6.7
1998
20.602
1.352
6.6
1997
21.207
1.325
6.2
1996
20.502
1.369
6.7
1995
19.766
1.304
6.6
( b ) Real Property Acquisition Tax is levied by all the prefectures (47). The tax is levied
at the time of acquisition of land and buildings. The tax rate is 4%.
( trillion yen)
Total Prefectural Taxes (a)
Real Property Acquisition Tax (b)
(b)/(a) %
1999
14.586
.579
4.0
1998
15.319
.634
4.1
1997
14.947
.731
4.9
2
1996
14.591
.807
5.5
1995
13.908
.787
5.7
(c) Local Taxes ( Prefectural Taxes and Municipal Taxes) as of FY 1999
Prefectural Taxes
(trillion yen)
Amount
%
3.611
24.8
(Individuals)
2.464
16.9
(Corporate)
.764
5.2
(Interest rate)
.381
2.6
3.932
27.0
(Individual Enterprise Tax)
.229
1.6
(Corporation Enterprise Tax)
3.703
25.4
Real Property Acquisition Tax
.579
4.0
Prefectural Tobacco Tax
.276
1.9
Automobile Tax
1.751
12.0
Local Consumption Tax
2.479
17.0
Automobile Acquisition Tax
.463
3.2
Light-oil Delivery Tax
1.262
8.7
Miscellaneous
.229
1.4
Total of Prefectural Taxes
14.586
100.0
8.362
40.9
(Individual)
6.302
30.8
(Corporation)
2.060
10.1
Municipal Fixed Property Tax
9.323
45.6
Municipal Tobacco Tax
.867
4.2
City Planning Tax
1.374
6.7
Miscellaneous
.522
2.6
Total of Municipal Taxes
20.439
100.0
Total of Prefectural Taxes and Municipal Taxes
35.026
2.6
Prefectural Inhabitants Tax
Enterprise Tax
Municipal Taxes
(trillion yen)
Municipal Inhabitants Tax
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Tax Base of the Fixed Property Tax
Taxable fixed property includes (a) land, (b) houses and buildings, and (c) tangible
business assets which are depreciable for the purposes of the income tax and corporation tax.
The tax base is the assessed value of the taxable fixed property listed in the fixed property tax register book compiled by each municipality. Although the assessment is administered by municipalities, a unified formula for the assessment of the value of taxable fixed property is determined by the Minister of Public Management, Home Affairs,
Posts and Telecommunications of the Japanese government. With this uniform formula
the assessment by each municipality is basically unified all over Japan in order to ensure that the system is fair and equitable.
The assessed value of land is determined by taking into account actual market prices of
several similar tracts of land. Every assessment is done depending on the kind of land
(such as residential land, agricultural land, forest, etc). A certain number of standard
plots of land for assessment in certain areas of each municipality is selected for each
kind of land and an assessed value is assigned to the land facing the main roads. Then
the value of each plot is assessed in relation to the value of the standard plot of land,
taking into consideration the surrounding conditions.
Agricultural lands are assessed in the same way as residential lands, by starting with the
selection of a standard plot for assessment as agricultural land in each area. Agricultural lands in “the urbanization area” of the city planning area are basically assessed as
if the lands were residential lands. At the same time, for agricultural land designated as
an “agricultural green area” currently used for harvesting agricultural products, the tax
is levied as if on agricultural land even if the property is located in “the urbanization
area”.2
For the purposes of housing policy, the tax base for residential land is taken to be
one-sixth of the assessed value for the portion up to 200 square meters, and one-third of
2
The effects of this special treatment of agricultural land during the “boom” period of the
1980s are discussed in H. Ishi, The Japanese Tax System (3rd ed.; Oxford: Oxford University
Press, 2001), p. 230. [Note added by editors]
4
the assessed value for the portion exceeding 200 square meters.
Taxable assets which have an assessed value of less than the amount mentioned below
are exempt from tax.
Land:
300,000 yen
Buildings:
200,000 yen
Tangible business assets: 1,500,000 yen
Fixed property used as public roads or cemeteries, or for educational, religious, social
welfare, and other purposes stipulated in the Local Tax Law is exempt from the fixed
property tax. Fixed property owned by the national government, prefectures, municipalities, and embassies and consulates of foreign countries is also exempt from the fixed
property tax.
The value of a house or building is determined by taking into account the cost of replacement as well as depreciation for the years in use.
From the viewpoint of housing policy, the amount of tax for houses mentioned below is
reduced in the following manner:
(a) New houses built by March 31, 2002 with floor space of 50 to 280 square
meters: the tax amount is reduced by 50% for floor space up to 120 square
meters for the first three taxable years.
(b) New fire-proof residential buildings with three or more stories built by
March 31, 2002 with floor space of 50 to 280 square meters (as for apartment buildings for rent, the range of space is 35 to 280 square meters): the
tax is reduced by 50% for the first five taxable years.
The taxable value of tangible business assets is determined by taking account of the cost
and amount of depreciation.
Tax Rate
In the Japanese local tax system, the Local Tax Law stipulates the local taxes that prefectures and municipalities can levy. The standard tax rate is also stipulated in the Law
and each local government is expected to adopt this rate when they levy local taxes. The
standard tax rate for the fixed property tax is a flat rate of 1.4% of the taxable value. In
addition to the standard tax rate, the maximum tax rate is also stipulated in the Law,
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which gives each local government the power to levy fixed property tax at up to 2.1%
instead of the standard rate 1.4%. Out of 3230 municipalities 280 municipalities have
adopted a tax rate over 1.4%.
The same tax rate is applied to land and buildings in each municipality.
Tax Administration
The fixed property tax is collected by municipalities. For 23 special wards of Tokyo, the
Tokyo Metropolitan Government levies and collects the tax. As of FY1999, the tax collection rate of the fixed property tax ( the ratio of the fixed property tax collected
against the tax due) is 97.0%.
The fixed property tax is levied by municipalities in which the taxable property is situated as of January 1. Persons, irrespective of whether resident or non-resident, who are
listed as owners of taxable fixed property in the tax register book as of January 1 of
each year, is required to pay the fixed property tax. The fixed property tax is paid in four
installments, usually in April, July, December, and the following February. Each municipality sends taxpayers a tax form that includes the amount of the tax due as of January 1. Taxpayers must pay the tax either through banks or post offices or directly to municipal offices. Those municipalities that levy the city planning tax in addition to the
fixed property tax send the tax form of the city planning tax with that of the fixed property tax.
Each municipality must compile a tax register book for taxable fixed property. These
registers used to be compiled in the form of paper documents, but now, under a new
provision of the Local Tax Law, digital disks or other electronic devices can be considered as tax register books.
The tax register book for taxable fixed assets is exhibited to taxpayers for a period of
over 20 days from March 1 every year. Taxpayers are allowed to examine the tax register book during this period and make objections to the Fixed Asset Valuation Council on
the assessed value of their fixed assets. There are very few formal appeals to Assessment Value Review Committees: out of 760,000 taxable properties in Nagoya, for ex-
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ample, only 114 appeals were filed on land values and 17 on building values.3
The assessed value of land and houses or buildings listed in the tax register book is revised every three years according to a survey of the market price of land and the cost of
replacement of houses or buildings. When the re-assessment is carried out all over Japan
every three years, sometimes the assessed value of land rises considerably. In order to
avoid abrupt increases in the tax burden, the increment in the taxable value of the land
in the period from FY 2000 to FY 2002 is limited to a certain extent by adjustment rates
which are determined by the ratio of the taxable value to the real assessed value of land.
The assessed value of tangible business assets in the tax register book is revised annually. Owners of taxable tangible business assets must report to the municipalities in
which they are situated the details needed to assess the value of such tangible business
assets.
Citizens can register their rights to the land or building in order to protect them from
when they purchase or transfer the fixed property. The Ministry of Justice keeps fixed
property registry files of its own. Regarding such purchases or transfers it is convenient
for municipalities to use this file to check their tax register book for the fixed property
tax. For example, they can check whether there are any discrepancies as to who the real
owner is, or which land a taxpayer owns. On the other hand, the branch offices of the
Ministry of Justice must inform each municipality of the acquisition or transfer of fixed
property located in the municipality.
Prefectural Fixed Property Tax
Although principally municipalities levy the fixed property tax, prefectures can also
levy a prefectural fixed property tax on the part of the assessed value of large business
assets in excess of municipal taxation limits. The owner of business assets whose assessed value exceeds the municipal taxation limits prescribed by the Local Tax Law are
liable for the fixed property tax imposed by the prefecture in which the assets are located. Accordingly, the owner will pay two taxes on his/her business assets, one being
3
See J.M. Youngman and J.H. Malme, An International Survey of Taxes on Land and
Buildings (Deventer: Kluwer Law and Taxation Publishers, 1994), p. 152.[Note added by
editors]
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the prefectural fixed property tax and the other being the municipal fixed property tax.
The tax base of the prefectural fixed property tax is the amount of the assessed value in
excess of municipal taxation limits.
.
The following has been added by the editors, who are solely responsible for its contents:
Other Taxes on Land
In addition to the property taxes described above, land in Japan is subject to several
other taxes, as follows:
A prefectural tax on the acquisition of land and buildings at a rate of 4 percent on the
property tax assessment value.
A municipal special land-holding tax on acquisition – distinct from the similarly named
tax on land-holding as such (imposed at 1.4 percent of acquisition cost for land held less
than 10 years, with the property tax payable on land creditable against it) – levied on the
acquisition cost of land at a rate of 3 percent, against which the prefectural land acquisition tax just mentioned is credited.
In addition, there are several national taxes affecting land transfers: a registration and
license tax based on assessment values at a rate of 0.5 percent and an inheritance tax
levied at progressive rates on the (different) assessment value for inheritance tax.4
Capital gains taxes with rates varying with the time of holding are also applied to land
transfers.
Finally, there is a special municipal tax on the construction or extension of buildings
with more than 2,000 square meters for business use, at a rate of 6,000 yen per square
meter of new floor space.
Reforms in Land Taxation
Following a prolonged boom in land prices, the whole system of land taxation was re-
4
On the exceptionally complex Japanese inheritance tax, see Ishi, op. cit., chap. 12.
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viewed in detail in a special report in 1990. The nominal rates of the basic property
taxes, as noted earlier, were 1.4-2.1 percent of assessed value for the property tax plus
0.3 percent for the city planning tax and an additional 1.4 percent (on acquisition cost)
for the special land-holding tax on holding. But the effective tax rate of the property
tax alone in 1990 was only 1 percent of official valuations (as set each year) and for all
three taxes on land holdings, only 1.5 percent, largely as a result of the relief for residential land and especially the marked under-valuation of assessed values for tax purposes compared to official valuation prices. The national average assessed/official value
ratio in 1991 was only 36.4% (with a coefficient of variation of 34.2). The effective
rates relative to market prices were even lower, with a figure as low as 0.05 percent being cited for the Tokyo metropolitan area.
One result of the 1990 report was some reforms in assessment which led to a rise in the
assessed/official ratios to 2.4% and 3.3% respectively by 1995. Nonetheless, as Professor Ishi, chair of the committee which wrote the report, has noted, there was very
strong resistance to raising local taxes: “…local authorities strongly maintained that the
property tax should not be employed to levy a heavier burden on land-holdings as a
means of reducing the asset value of land. This reflected their basic attitude of benefit
taxation. They believe that the property tax should be collected by municipal governments to cover the cost of local public services to the inhabitants. Such a tax has no
direct bearing upon the increased asset value of land caused by price hikes. As a consequence, a lower value of property tax assessment was rationalized on the ground that
it should basically differ from either the market price or the official valuation price of
land.”5
For this reason, the principal fiscal recommendation of the 1990 committee, in addition
to strengthening the capital gains tax on land, was to introduce a new national land
value tax, which was duly done in 1992, at a rate of 0.2 percent, raised to the planned
0.3 percent in the following year. Collections from this tax fell steadily, however, accelerated by a cut in the rate to 0.15 percent in 1996, until it was abolished in 1998, following a prolonged decline in land prices as Japan entered into an ever deeper recession.
Interestingly, agricultural land was exempted from this tax, which was levied only on
land exceeding a high basic deduction (the greater of 1 billion yen or 30,000 yen per
square meter).
5
Ishi, op. cit., p. 232.
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Sources:
H. Ishi, The Japanese Tax System (3rd ed.; Oxford: Oxford University Press, 2001),
chapter 13, pp. 219-47
International Bureau of Fiscal Documentation, Asia Pacific Taxation, Supplement No.
197, January 2001.
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