20/02/23

ASIA: Undeclared income of wealthy in Japan hits record high.

As published on japantimes.co.jp, Monday 20 February, 2023.

The undeclared income of wealthy people totaled ¥83.9 billion in the year through June 2022, up 72.3% from the preceding year and the highest annual level since data became available in the year to June 2010.

The record figure was revealed as a result of income tax investigations for the 2021 business year conducted by regional taxation bureaus across the nation.

The National Tax Agency is actively checking whether affluent people have filed income tax returns properly, focusing on large holders of securities and real estate as well as high-income earners and individuals who have made large overseas investments.

According to the agency, the amount of back taxes collected from wealthy people more than doubled from the previous fiscal year to ¥23.8 billion. The undeclared income averaged ¥37.67 million per individual, and the average amount of back taxes came to ¥10.67 million, both record highs.

For people involved in overseas investments, the figures were even higher. The average undeclared income was ¥78.36 million, with the average back tax standing at ¥29.53 million.

“We exchange account and other information with foreign authorities every year and have set up an investigation team,” an official at the agency’s Individual Taxation Division said.

The agency did not disclose its definition of wealthy people, however, arguing that the information could put such people on alert and prompt them to take action that would make investigations harder.

One possible indication of the level of assets and income that would put an individual in the wealthy category is provided by a document called the asset and liability record, which certain individuals are required to submit to the agency.

Those who meet certain criteria, such as annual income of more than ¥20 million plus assets of ¥300 million or more, excluding retirement allowances, have to file the record with the agency. The document is believed to be among the information used for the authorities’ income tax investigations.

Nomura Research Institute regards households with net financial assets between ¥100 million ($745,600) and less than ¥500 million as “wealthy” families. It estimates that as of 2019, there were 1.24 million such households in Japan. The number of “superrich” households, with ¥500 million or more, was seen totaling 87,000.

The number of such well-heeled families has increased steadily since the launch of Abenomics, the signature deflation-fighting policy mix of the late Prime Minister Shinzo Abe, which sent stock prices rallying on the back of massive monetary easing and the yen’s depreciation. According to some experts, additional factors include a cut in the maximum income tax rate and a uniform 20% tax rate for financial income, which is lower than tax rates for other earnings of those classified as high income.

Every year, the National Tax Agency publishes a list of high-income industry sectors related to wealthy people, ranking them in terms of average undeclared income per case. Management consultants topped the latest list with ¥22.66 million, followed by systems engineers with ¥21.5 million and animal breeders with ¥21.36 million.

In the previous year, systems engineers ranked 11th and breeders eighth. Their rapid advances in the latest year under review are believed to reflect the COVID-19 pandemic, which triggered increases in compensation for jobs that can be done at home and sparked a pet boom.

On the other hand, sex-related businesses and hostess bars, which had regularly been placed high in the annual rankings before the coronavirus crisis, did not make the latest top 10 list. Their retreats are believed to have been caused by declines in customer numbers due to efforts to limit people’s movements.

The tax authorities plan to remind high-income industries of the need to file income tax returns without fail and are prepared to take strict measures if tax evasion or unfair tax-saving measures are confirmed, sources said. Aiming to ensure fairness among taxpayers as income gaps continue to widen in Japan, they are keeping a close watch on whether and how much rich people will meet their constitutional requirement to pay taxes.

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