Archive for the ‘Taxes & Welfare’ Category

Regional bank hits on novel way to attract business

Wednesday, February 12th, 2014

Banner advertising housing loans outside branch of Keiyo Bank in Inzai

Banner advertising housing loans outside branch of Keiyo Bank in Inzai

Lottery winners who hit the jackpot are always good news stories, but the anonymous lucky individual who was the subject of reports in all major media on Feb. 3 represented a different angle on the topic. Instead of being announced by the authorities who administer the Year-end Jumbo Takarakuji lottery, the ¥700 million prize was publicized by a regional financial institution, Chiba Prefecture’s Keiyo Bank. That’s because the winner of the jackpot didn’t actually have the winning ticket in his or her possession. The bank was holding it for safe keeping.

With interests rates on time deposits being so low for so long, banks, especially smaller regional ones, have a tough time convincing people to become customers and usually resort to special premiums or deals. Keiyo’s is to offer lottery tickets as incentives to open savings accounts. For every one million yen deposited in a three-year teiki yokin (time deposit account), the depositor receives five lottery tickets per year for various drawings. Keiyo, however, only supplies the customer with the number of the ticket, not the ticket itself, which it holds on to. When the drawing is carried out the customer checks the number against the winners and if there’s a match the customer contacts the bank, which then gives the customer the ticket for him or her to cash in.

In this most recent case, the drawing was conducted in early January and the bank, knowing that one of its customers had won, waited for the customer to call. The person didn’t.   After a month, the bank finally called the individual with the happy news.

What’s most interesting about the story is that it isn’t the first time a Keiyo customer has hit it big. The bank has been offering the lottery incentive since March 2007, and in the intervening years there have been 34 ¥1 million winners, two ¥5 million winners and one ¥100 million winner. These numbers give the impression that Keiyo customers have a higher probability of winning, but according to a lottery expert interviewed by Tokyo Shimbun it’s difficult to figure the odds since the bank has never released the total number of tickets it has bought for customers over the years, but likely it isn’t that much because Keiyo is, after all, a regional bank with a limited reach.

As a reference, interest on a three-year time deposit is 0.03 percent, which means for the first year of a ¥1 million account the customer earns ¥300. That amount would buy one ¥300 lottery ticket before the government deducts its 20.315 percent tax on interest.

Side note: In December we wrote about the Post Office lottery for New Years cards. In case you still have them lying around and didn’t check the winning numbers here they are: If the last five digits on any of the cards you received are, in order, 9-7-0-8-5 then you win ¥10,000. If the last four digits are 2-3-4-4, you win a prize of some sort of regional product. And if the last two digits are either 7-2 or 7-4, you win a sheet of postage stamps. You have until six months after the Jan. 22 announcement date to claim your prizes.

Deflation Watch: New Year’s scorecard

Sunday, January 12th, 2014

Bottomless: Bargain bulk sale on diapers at discount store

Bottomless: Bargain bulk sale on diapers at discount store

In a chat with Nobel Prize-winning economist and New York Times columnist Paul Krugman, the weekly magazine Aera asked him about the prospects of “Abenomics,” which Krugman has supported. He still supports it, but thinks that the consumption tax hike to 8 percent next April was a “bad decision” that may ruin all the good things that Abenomics could achieve. He recommends that Prime Minister Shinzo Abe either cancel the increase or postpone it.

It’s probably too late for that, which explains Abe’s recent desperate attempts to get Japan’s businesses to promise to boost salaries, none of which seem to be working. In a recent Kyodo News survey of 104 “key” companies, only 17 percent say they plan to increase pay in 2014, but none will carry out basic salary increases across the board, what’s known in Japanese business parlance as “base up.” The feeling is that they’ll increase wages for some workers, maybe through bigger bonuses, but such schemes don’t instill confidence in workers, and unless workers think they will be paid more in the future than they are now, they aren’t going to spend as freely, behavior that’s central to the success of Abenomics.

In the Kyodo survey 71 percent of businesses polled believe they will see growth in 2014, but if that growth isn’t translated into higher salaries, the game is off. Moreover, the good performance of the economy in 2013 was misleading. As web magazine Diamond Online points out, it was a minority of well-to-do Japanese who benefited from the stock market boom in the past year. Also, because people have anticipated the consumption tax hike next year, they rushed to buy houses. These two factors boost numbers, at least temporarily, but they don’t solve the underlying problem of deflation and lack of consumer sentiment in the population at large.

Much was made of the big profits enjoyed by large companies this year, but they represent a fairly small portion of the Japanese business community, only 0.3 percent of all registered companies. They made money through exports, meaning they benefited from the higher dollar. That’s all. Diamond says that 70 percent of the Japanese workforce is employed by small or medium-sized companies, who depend mainly on domestic consumption.

Diamond surveyed 200 workers about their winter bonuses. Seventy-eight said they received no bonus at all, while 98 said their bonus was less than ¥500,000. Only 38 replied that their bonus was larger than last year’s, while 40 said it was less. The remainder said there was no change. This contrasts greatly with the widely reported news that the average winter bonus of an employee of a large company was ¥806,000.

More significantly, when Diamond asked the people who did receive a bonus what they used it for, 61 percent said it went into their savings, while 24 percent said it would go for “necessary expenses” and 19 percent used it to help pay off loans. In other words, only 6 percent, at most, bought something with it.

The Mizuho Research Institute found that the average household, which earns ¥4 million-¥5 million a year, will spend ¥78,869 more in taxes in 2014 thanks to the consumption tax increase. The Cocomane website, which helps consumers save money with tips on reducing expenditures, did its own survey of 1,127 people, 80 percent of whom said they “economize” on a regular basis. Why are they always looking to save money? The number one reason is to “prepare” for future expenditures. The second most common reason was “loss of income,” and the third reason “not enough money saved.” As to the question “How do you save money?” the most frequent answer was the simplest: Just try not to spend it, followed by “not eating out” and “cutting back on utilities.”

But the most interesting responses were in relation to the consumption tax hike. Fifty-four percent of respondents said they have not made nor do they intend to make any “big purchases” before the increase goes into effect, and 62 percent of the people who are making big purchases say it has nothing to do with the increase. Essentially, most consumers either aren’t changing their already careful consumption habits in face of the tax increase, or they will try to spend less. Almost no one expects to spend more.

Government tries to jolt EV sales with charging station subsidies

Wednesday, November 27th, 2013

Newspaper ad promoting installation of recharging stations for EVs

Newspaper ad promoting installation of recharging stations for EVs

Norway boasts the highest per capita ownership of electric cars in the world, for a number of interrelated reasons, it seems. The tax on purchases of new cars, all of which are imported, can be more than 100 percent, depending on weight and fuel efficiency, but it’s almost zero for electric cars. The annual automobile tax is about a seventh of the tax burden for a gas-powered vehicle. This savings is apparently enough to offset the higher sticker price of electric cars. According to a friend of ours who is Norwegian, the American Tesla sells for 580,000 kroner, or ¥9.6 million, and there is a six-month waiting list. We asked our friend if there were enough high-speed charging stations in Norway, and he said there are about 4,000, which is not considered enough but he says most people are “satisfied” with charging their EVs at home, where it takes about 8 hours to top them off.

In addition to offering tax breaks, the government promotes EVs by subsidizing the installation of charging stations. EVs do not have to pay road tolls, and they can use lanes that are normally limited to buses and taxis. More significantly, despite the fact that Norway’s wealth is derived from oil, its gas prices are among the highest in the world, twice as much as they are in Japan. So while EVs are very expensive to buy , in the long run they are much more economical thanks to the government.

One of the reasons auto-related taxes are so high in Norway is that the country has no automotive industry to protect. Electric cars are manufactured in Japan and are relatively cheap, but much less popular. At last week’s Tokyo Motor Show, Carlos Ghosn, the CEO of Nissan, which makes the electric Leaf, admitted that EVs weren’t selling as well as expected and that the company’s sales goal of 1.5 million units by 2016 would not be reached.

According to Sankei Biz, EV sales in Japan have picked up slightly in recent months, and as of October 120,000 electric cars have been sold in Japan since they were introduced. About 87,000 of these were made by Nissan. Ghosn says the main reason the target won’t be met is “lack of infrastructure,” meaning lack of charging stations.

In August, Toyota, Nissan, Honda and Mitsubishi announced that they would jointly build more recharging stations throughout Japan to promote electric vehicle sales, with the help of government subsidies, and last week the four automakers agreed on the details of “specific financial assistance” to parties who install charging stations.

Tokyo Shimbun reports that at present there are 1,900 quick charging stations in Japan and about 3,500 normal charging stations. The government will provide subsidies of up to ¥1.7 million to businesses that install quick recharging stations on their properties and ¥400,000 to businesses that install normal recharging stations. The government’s aim is to increase the number of quick stations by 4,000 and normal stations by 8,000, though no timeline has been given.

These subsidies are being offered through both the central government and local governments. Maintenance of the stations will also be subsidized for a limited time. If the business is a convenience store, it has to have parking for at least ten cars, and if it’s a gas station it has to be open 24 hours. Applications for the subsidy, however, will only be taken until February of next year.

Blood on the tracks: Who pays for deadly railway accidents?

Friday, October 18th, 2013

Don't look now

Don’t look now

One of Japan’s enduring urban legends is that railway companies demand compensation from families of people who commit suicide by throwing themselves in front of trains. Because the media doesn’t report such matters it isn’t easy to verify, but according to the Chunichi Shimbun railways “in principle” send bills to families of people who die in railroad “accidents” if the railroad is not at fault and the accident causes a delay that costs the railway money. The articles don’t say anything specific about suicides, however.

The subject of the piece is a case that was recently decided in Nagoya District Court. JR Tokai sued the family of a 91-year-old man from Obu City, Aichi Prefecture, who was hit by a train and killed while walking along the tracks of the Tokaido line in December 2007. JR Tokai was demanding ¥7.2 million from the family for losses incurred due to delays caused by the accident, which affected 27,000 passengers and 34 trains, forcing the railroad to provide alternate transportation, such as buses, to inconvenienced customers.

In court, JR Tokai’s lawyers said the company sent a bill to the family of the man “as it usually does in such matters,” but the family never responded, so they filed a lawsuit and in the end the judge awarded JR the full amount it asked for. The family will appeal.

At issue was the responsibility of the family in the actions of the old man, who suffered from dementia. Six years ago local welfare officials determined that the man required 24-hour supervision. The family placed him in an institution several days a week, but on the remaining days he was at home with his 85-year-old wife, who can mostly fend for herself. In addition, the man’s eldest son, who lives in Yokohama, set up a care system for his father that included his wife regularly traveling to Obu to help out. On the day the accident happened he was alone with his wife, who dozed off, and he wandered out of the house and to the nearest station where he somehow ended up on the tracks.

Chunichi says there is no precedent for a railway company suing over an accident caused by a person with dementia, and the lawyer for the family said that the case could have serious repercussions for families with elderly members who have serious cognitive disabilities, since it means they could be liable for all sorts of incidents, and not just those involving trains.

In court the family said that JR Tokai should bear some of the responsibility since it didn’t prevent the man from getting on the tracks after he entered the station (presumably without a ticket, which raises another question). JR countered by saying it had “fulfilled all our legal obligations” with regard to track safety, and the judge agreed, adding that it was the responsibility of the family to monitor and supervise the actions of the old man.

But if families are monetarily liable for actions carried out by members who are senile, can they also be liable for members who are suicides? So far there doesn’t seem to be a court precedent for such a situation. It seems to depend on the circumstances, suicide or not.

For instance, recently a 40-year-old woman was killed trying to help an old man who stumbled trying to cross the tracks of the JR Yokohama Line. The old man survived, but there has been no report that JR East is demanding he pay up, maybe because the media reports on the heroism of the woman drowned it out or made the company think twice about possible negative publicity if it made such a demand in this case.

Then again, earlier this week a 47-year-old man was killed while crossing the tracks of the Tobu Tojo Line in Tokyo’s Itabashi Ward. Witnesses say he was walking and absorbed in his cell phone when he was hit and didn’t notice the train, though obviously he had enough presence of mind to go through the gates, which were down. Now that guy’s family will probably receive a bill.

Government wondering how to tap burgeoning ebook market

Saturday, October 12th, 2013

No waiting

No waiting

It’s official. The consumption tax goes up to 8 percent in April, and the government is anxious to plug any loopholes. The most bothersome one is for ebooks. Though domestically sold ebooks, meaning those distributed by Japanese vendors from physical addresses in Japan, are already taxed, those sold from overseas are not, and the tax bureau is wondering how to correct this problem, especially now that the price gap between an ebook purchased from a foreign-based agent and one purchased from a Japan-based seller will widen, thus setting up a disadvantage for the latter. Market research company Daiwa Soken reports that in 2012 the government missed out on ¥24.7 billion worth of tax revenues from the purchase of ebooks from abroad.

Legally, sales transactions that occur outside of Japan are not subject to consumption tax, and the place of the transaction is determined by the address of the seller. So if you go to Amazon.co.jp and look at various books, you’ll notice that those which are sold by Amazon Japan have consumption tax included in the price, while ebooks sold by Amazon Services International do not. What the government wants to do is change the law so that the place of the sales transaction is not the place of sale but rather the place of usage, a tactic that some American local governments have tried with regard to sales tax. But sales taxes are paid at the retail stage, while consumption taxes are incurred at every step of distribution, so a Japanese importer adds the tax after the item arrives in Japan.

If a customer in Japan buys the book directly from overseas, no tax is imposed, but when the law is changed customs could add it because the imposition location is the user’s address, not the seller’s. However, since ebooks, as well as music tracks and software, tend to be purchased over the net it’s more difficult to monitor, if not downright impossible.

According to Tokyo Shimbun, the Finance Ministry’s plan is to strike deals with tax agencies abroad so that the consumption tax is added on when sales are made. Overseas sales companies who do business in Japan would have to register with the Japanese tax bureau. For large-scale companies with widespread presence in Japan and sales units overseas, like Amazon and Rakuten, which in 2011 bought the Canadian ebook seller Kobo, that shouldn’t be a problem, but there are dozens if not hundreds of smaller content vendors who will fall through the cracks.

Already, some Japanese language ebook sellers and other net vendors have set up operations overseas to exploit this loophole, thus causing concern for domestic companies like Yahoo Japan, whose president compared such competition to a boxing match in which Japanese companies “have to fight opponents who are three weight classes above them.” Eight percent can make a big difference, especially since Japanese ebooks tend to be priced high anyway compared to ebooks in other countries.

In that regard, buyers of non-Japanese language books have an even greater advantage in Japan, since Japanese publishers still enjoy government-sanctioned fixed prices for all first-sale books and magazines, regardless of when they were printed. Japanese bookstores cannot set their own prices and industry distribution rules discourage remainders. With the rising popularity of ebooks in the West — 20 percent of all books now sold in the U.S. are electronic as opposed to 8 percent in Japan — print books have actually benefited since people can seek out remainders and used books through Internet sales agents, and usually they purchase them for less money than an ebook, even with shipping included. That’s not the case in Japan, except for used books. But if Japanese ebook sellers set up agencies abroad they can corner the market.

How economically effective are the Olympics?

Monday, September 2nd, 2013

Group effort: Poster promoting Tokyo's bid for the 2020 Olympics at a mall in Chiba Prefecture

Group effort: Poster promoting Tokyo’s bid for the 2020 Olympics at a mall in Chiba Prefecture

The Asahi Shimbun recently reported that one of the reasons the Japanese government has been slow to tackle the water leak crisis at the crippled Fukushima Daiichi Nuclear Power Plant is that it doesn’t want to draw attention to the problem while Tokyo remains a candidate for the 2020 Olympic Games. Despite the fact that the Olympics are supposed to be hosted by cities not countries, Japan’s central government is counting on the games to boost its overall economy, and Asahi also reports that the decision, which will be determined on Sept. 7, will have a very strong bearing on whether or not the consumption tax increase will take place in April. If Tokyo is the winner, the tax will go ahead as planned.

The Japan Olympic Committee is predicting a long-term economic boost of ¥3 trillion if Tokyo gets the games. That’s a lot of money, but while it may offset the negative effects of the consumption tax increase temporarily it’s hardly enough to kick start the entire Japanese economy. In any case, how exactly would the Olympics bring about this financial miracle? After the games last year, the city of London and the U.K. government jointly announced that the event benefited the British economy by almost £10 billion (¥1.5 trillion). However, the BBC questioned just how much of this “impact” could be directly attributed to the Olympics. In addition, the Financial Times wondered about the government’s calculation that the Olympics would have a secondary effect on the British economy that would amount to between £28 billion and £41 billion (¥4.2 trillion-¥6.0 trillion) until the year 2020. A financial expert interviewed by the FT said he had no idea how the government arrived at this figure.

To get some idea of how this “economic effectiveness” (keizai koka) is calculated, the Nihon Keizai Shimbun evaluated the figures submitted by the Tokyo Bid Committee for the 2016 Olympic Games, which Tokyo lost to Rio (page 5). Included in the ¥2.94 trillion that was to be added to the Japanese economy by the games was ¥332 billion in the form of construction outlays, ¥175 billion to be spent by “guests,” ¥356 billion in sales of official merchandise and “related purchases” (like TV sets that people bought to watch the games), and ¥86 billion from tourists who would visit Tokyo before the games, presumably drawn to the city because of the Olympics though they would not actually attend them.

Moreover, the JOC predicted a “ripple effect” of ¥990 billion in related “demand” after the Olympics ended, and then a secondary effect of ¥650 billion from the higher salaries and added jobs that this ripple effect would engender. Except for the construction costs and revenues for restaurants and hotels during the actual two-week Olympic period, all these figures are speculative and based on phenonema that are difficult to measure. For instance, isn’t there a lot of overlap between the spending of tourists and the purchase of merchandise related to the Olympics?

The point is, when the media says that the 2020 Olympics will boost the Japanese economy by ¥3 billion people think that means ¥3 billion will be added to the economy, but actually most of that money is simply being redistributed. Tokyo, for instance, says it will spend ¥1 trillion on the 2020 Olympics, and according to the JOC the city has ¥400 billion “saved” in what it calls junbikin (preparation money), which is cash that the prefectural government has accumulated at a rate of ¥100 billion a year. However, it is all from taxes, which means that the money that goes to construction came from residents.

Moreover, the central government has pledged to cover any shortfall in operating expenses for the Olympics, so presumably that means it will provide the remaining ¥600 billion (or more), which also comes from tax money. Since most of the work that is created directly for the Olympic Games is done by volunteers, this money is not necessarily going to people in the form of employment and wages. The assumption, or at least the hope, is that Olympic money that goes to big corporations will eventually trickle down to people in the form of the aforementioned ripple and secondary effects, but, as the FT expert implied, there’s no way you can confirm this until it actually happens.

New tax-free investment scheme not likely to increase investment

Thursday, August 8th, 2013

The acronym NISA has a checkered image in Japan. To most people it stands for Nuclear and Industrial Safety Agency, the now discredited government organ that did such an ineffectual job of policing nuclear power plants prior to the Fukushima accident of March 2011. On Jan. 1, 2014, the acronym will take on a different meaning as the Japan (Nippon) equivalent of the U.K.’s Individual Savings Account system, under which individual investors in stocks or mutual funds will not have to pay taxes on dividends and capital gains. It sounds simple and irresistible, but according to Tokyo Shimbun it may prove to be as resistible as that other more toxic NISA.

NISA application

NISA application

At present, dividends and capital gains are taxed at a flat rate of 10 percent on personal income as part of a government incentive program to boost stock investment that will end this year. Originally, the taxation rate was going to return to 20 percent, the rate levied on regular savings accounts, which is what the finace ministry wants. However, the Financial Services Agency (FSA) thinks that more average people should be encouraged to invest in stocks and helped pass the NISA law, which was modeled after Britain’s.

On the surface, the system seems easy. Anyone 20 years of age or older can open a NISA account with a financial institution, but is limited to only one, and for four years the individual cannot switch his or her account to another institution. The account holder can put up to ¥1 million a year into the account for five years, which means the maximum amount of non-taxable investment at any given time is ¥5 million. The tax-free system itself is limited to ten years, meaning no investments in NISA can be made after 2023.

Unfortunately, there are other conditions that experts are saying may scare average people away. During a given year, the individual can redeem any dividends or capital gains that are earned but he cannot reinvest that money back into the account during that year. He can, however, reinvest it the next year as part of the ¥1 million maximum input allowed during a single year. Also, at the end of five years he can roll over the ¥1 million he invested the first year, and the next year roll over the ¥1 million he invested the second year, thus maintaining a ¥5 million maximum account over time. However, once ¥5 million is reached, he cannot make any “new” investments.

Banks and securities companies will start accepting applications for NISA on October 1, and competition for customers is already heated. The Japan Securities Dealers Association is airing commercials for NISA featuring idol Ayame Goriki, and most companies are offering ¥2,000 cash premiums as an incentive to sign up. The stated target of the FSA is first-time investors and young people, but Tokyo Shimbun doesn’t think the message will get through. Financial journalist Minako Takekawa told the newspaper that she believes the new system will only appeal to people who are already investing, and that it needs to be simplified greatly if it’s to appeal to a wider consumer base. She says Britain’s system is easy and popular, with 40 percent of the population signed up. Like Japan’s, the U.K.’s ISA system was originally only meant to last 10 years, but it has since been made permanent, with financial services companies devising lots of products that take advantage of ISA, including regular savings accounts. Takekawa went to London earlier this year to study the system and found that “even people who don’t have a lot of money find it easy to use.”

Popular economist and TV personality Takuro Morinaga told Tokyo Shimbun that the reason NISA is so convoluted is that the finance ministry made it so. He says the ministry is “greedy” for more taxes and so have sabotaged NISA by making it too difficult for the average person to understand. The ministry was counting on a return to the 20 percent rate at the end of this year, and suddenly they’re getting nothing.

Of course, one aspect of NISA that most experts overlook is that it’s risky. Unlike regular savings accounts, an investor’s principal is not guaranteed or insured. Consequently, even if the system is simplified, older people will be reluctant to join. And as for young people, they don’t have any money to invest in the first place, at least not until their wages are increased.

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