The following is a brief synopsis of Japan's Landholding Tax Law as of the time of its enactment.

Law No. 69 of 1991, creating a new landholding tax (chika-zei), was promulgated by the 120th session of the Diet on 2 May 1991.

The tax will be levied on the value of all land inside Japan held by private individuals or corporations as of 1 January of each year, commencing on 1 January 1992. There are special exemptions, as well as a basic deduction.

Although there are local taxes on land, including the fixed assets tax and the special property tax, this is the first national tax on land. It is expected that the landholding tax will produce revenues of between ¥300,000,000,000 and ¥400,000,000,000 annually, enabling the government to make further cuts in income tax rates.

The landholding tax is intended to discourage speculative landholding and to bring down the price of Japanese real estate, which has skyrocketed in the last five years. While the government expects real estate prices to drop by as much as 50% because of the tax, critics feel that the broad scope of exempted land and the low rate of taxation will render the tax ineffective.

TAX RATE

The tax rate is 0.3% of the National Tax Administration valuation for inheritance tax purposes. For 1992 only, the tax rate is 0.2%.

The tax rate, together with other features of the tax, are to be reviewed by the Lower House of the Diet after 3 years.

EXEMPTIONS

Land exempted from the landholding tax includes:

1. agricultural land,
2. forestry land,
3. public land and land for schools, hospitals and other public facilities,
4. land valued at less than ¥30,000 per square meter,
5. land on which the taxpayer's own residence is situated,
6. land on which rental housing (houses, apartments or dormitories) is situated.

Ultimately the exemption for agricultural land will apply only to productive land. Non-productive agricultural land in one of the three major cities will become taxable after five years (i.e., in 1996).

The exemption for rental housing land is also limited. It does not apply to the land on which executive housing is situated, which is subject to the tax.

DEDUCTIONS

The basic deduction for the tax is the greater of

1. ¥1,500,000,000, in the case of individuals or small or medium-sized corporations, as defined in the Commercial Code (¥1,000,000,000 in the case of a large corporation as defined in the Commercial Code), or
2. the amount determined by multiplying ¥30,000 by the number of square metres of the property.

FILING OF RETURNS AND PAYMENT

The tax is assessed against the aggregated value of all taxable land held by the taxpayer on the first of January each year, less the applicable basic deduction. Taxpayers must file a tax return between the following 1 October and 31 October showing the total taxable value of landholdings and the amount of tax owing. One half of the amount of tax owing must be paid by the last day of the filing period. The remainder is due by 31 March of the following year.

For the first year of the tax (i.e., 1992) returns must be filed between 16 November and 15 December. Accordingly, the initial tax installment must be paid by 15 December.

© 1992, Vicki L. Beyer

Temple University Japan