Archive for the ‘Taxes & Welfare’ Category

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.

In Tokyo, all garbage is not created equal

Monday, June 24th, 2013

Why am I blue?: Trash in city-mandated garbage bags waiting to be collected

Why am I blue?: Trash in city-mandated garbage bags waiting to be collected

Two weeks ago the city of Chiba announced that it would start charging noncommercial residents for garbage collection in February. Like many municipalities throughout Japan it will use a garbage bag system: All refuse must be deposited for collection in special bags sold by the city. Presently, Chiba only charges businesses for refuse collection, but the cost of processing garbage continues to go up. In the beginning, residents will pay ¥36 for a 45-liter bag, regardless of whether the trash is burnable or non-burnable. That comes to about ¥0.8 per liter, which will only put a very small dent in the city’s revenue problems. Three years ago Chiba was spending ¥13.3 billion a year on refuse processing, and estimated that 45 liters worth of burnable trash cost ¥280 to dispose of. The same amount of non-burnable trash cost ¥220 to process.

According to Tokyo Shimbun, local governments started charging their residents for refuse collection around the turn of the millennium. Now, about 55 percent of municipalities in Japan do so, and most use the garbage bag system, which only pays for part of the cost. However, the burden on residents varies widely from one place to another, even within the prefecture of Tokyo.

People who live in the 23 wards don’t pay any extra for refuse collection, but those who live in the cities and towns of the Tama region of Western Tokyo pay a lot A woman interviewed in the article recently moved from Ota Ward to Mitaka City. Where she used to live she paid nothing for trash collection, but Mitaka requires that refuse be placed in bags, otherwise it won’t be picked up. A package of 10 purple 40-liter bags costs ¥750.

Continue reading about garbage regulations →

Insurance companies main beneficiaries of scheme to protect obstetricians from malpractice suits

Thursday, June 13th, 2013

In late May, 1,041 former obstetrics patients of 28 medical facilities submitted a plea to the National Consumer Affairs Center (NCAC) to arbitrate a settlement with the Japan Council for Quality Health Care (JCQHC) that would partially refund money they had paid during their pregnancies for insurance purposes. The JCQHC is a foundation that carries out third-party evaluations of hospitals and clinics, but it also oversees a special compensation system enacted by the government in 2009 to protect obstetricians from career-threatening malpractice suits.

The system allows for a form of insurance that all obstetrics patients, meaning pregnant women, pay into. If a fetus or baby suffers brain damage before or during delivery, the insurance pays up to ¥30 million in damages over the next 20 years to the child and his or her parents. This no-fault insurance system was put in place because fewer medical students were opting to become obstetricians, partially because the dwindling birthrate has made obstetrics less profitable, but mainly because malpractice awards in the cases of babies born with disabilities have been extremely high. It was just too financially risky to go into the field.

Pink is the color of the obstetrics department

Pink is the color of the obstetrics department

Unless a pregnancy threatens the well-being of the mother, childbirth is not covered by national health insurance. Though in theory the obstetrics insurance is optional, if a pregnant woman patronizes a medical facility that pays into the insurance system (meaning 99.8 percent of them) they automatically charge her the ¥30,000 premium and incorporate it into her bill. What complicates the matter is the so-called “public aspect” of the system, according to a recent article in Aera magazine.

To encourage women to have babies, local governments compensate them for the money they spent on childbirth after the fact with something called shussan ikuji ichijikin (one-time payment for childbirth), a handout administered by the National Health Insurance Union (NHIU) of up to ¥420,000 per birth, regardless of how much money the patient spent.

This amount includes the ¥30,000 premium that the woman paid for the obstetrics insurance, so in effect the public is paying for the insurance since the NHIU uses taxpayer money as well as national health insurance funds for payments. In that regard, Aera has characterized the JCQHC as an amakudari institution; in other words, a bureaucratic entity whose main purpose is to justify its own existence.

Since the insurance system was launched in 2009, it has paid out about ¥4.1 billion in compensation for damages suffered during childbirth. At the end of the last fiscal year there was still about ¥80 billion in the reserve pool of funds and it is estimated the pool, which is controlled by the five insurance companies, will increase to ¥100 billion by the end of the present fiscal year.

According to Aera, the JCQHC originally estimated that between 500 and 800 babies would suffer brain damage every year out of the country’s 1.2 million births, but real statistics for fiscal 2012 show that only about 200 babies suffered such damage. The mothers who requested arbitration from the NCAC are claiming they overpaid for the insurance and are demanding ¥20,000 each in refunds from the JCQHC. If they win, the organization will have to pay a total of ¥20.8 million. As Aera notes, more than 50 million women have paid this premium since 2009, though, strictly speaking, it is the public who has paid the premiums.

One obstetrician interviewed by Aera says that the reason all medical institutions sign up for the insurance is that part of the law mandates that any medical facility which applies for “high-priced medical care” compensation to the NHIU cannot be approved if it doesn’t pay into the obstetrics compensation insurance plan. Otherwise, the facility can only receive maximum compensation of ¥400,000 for each delivery, regardless of what it cost the facility. That’s too risky for smaller clinics.

The main beneficiaries of the system are the private insurance companies that participate. The premiums are practically free money since the companies are allowed to collect and administer the funds. Also, brain damage resulting in cerebral palsy is difficult to diagnose in an infant, and there is a five-year time limit for insurance claims.

In many cases, developmental disorders arising from brain damage don’t manifest themselves until the child is older and the time limit has passed. However, the insurance companies are also using this aspect to explain why they need such a huge pool of money.

Of children born in 2009 who were eventually found to suffer from cerebral palsy due to brain damage, 12 were discovered in 2009, 100 in 2010 and 158 in 2011. Diagnoses are thus progressive, so the insurance companies say they need this huge surplus to meet future claims. But there has already been discussion in the Diet that the funds should be administered by a government body so as to relieve some of the public burden associated with medical care.

In any event, as some pediatricians have noted, ¥30 million over 20 years is insufficient to take care of most people who suffer from cerebral palsy. They tend to require 24-hour care the older they get. As one mother who is part of the arbitration claim told Aera, a system for compensating brain damage victims directly would be cheaper, more efficient and more humane than the obstetrics compensation insurance, which benefits administrators more than doctors or patients.

The widening income gap is affecting higher education

Tuesday, June 4th, 2013

Students from lower income households have always been able to turn to public institutions of higher learning to make their dreams come true. Public universities, whether national, prefectural or municipal, offered high quality education for much less money. However, a recent survey by a research group at the University of Tokyo has found that the well-publicized widening income gap is now being reflected in public university enrollments.

todai

University of Tokyo

The survey received 1,064 responses from parents of children who graduated high school in the spring of 2012. Households where the annual income was ¥4 million or less were classified as low income, while those whose annual income was ¥10.5 or more were classified as high income.

The percentage of low income students who advanced to a public university last year was 7.4, while the percentage of high income students who did the same was 20.4. In other words, the enrollment rate for higher income students was almost three times that of lower income students.

The research group conducted the same survey in 2006. In that year, 9.1 percent of the lower income students went on to public universities while 11.9 percent of higher income students did, a negligible difference. At the same time the ratio of lower income to higher income students who went on to private universities hasn’t changed significantly since 2006, when the research group concluded that public universities were fulfilling their mission of providing educational opportunities for lower income students. The group can no longer draw such a conclusion.

The reason for the widening gap is that more higher income students are applying to public universities because even they feel the need to save money. Public universities have a limited number of openings for new students, and higher income students tend to do better on entrance tests because they can afford supplemental education, such as juku (cram schools), which lower income students can’t afford.

The survey also asked those parents who thought their children’s academic achievements were “high” whether or not their children actually went on to university. Among these respondents, in 2006, 67 percent of lower income students and 72.9 percent of higher income students advanced to university; while in 2012 the respective portions were 53.3 percent and 76.9 percent.

The research group has called on the education ministry to provide more financial assistance to lower income students so that they can attend and afford university. In 2011 the average annual tuition for a public university was ¥540,000 and for a private university ¥860,000.

City dumps dog tax for yellow cards to deal with lazy owners

Wednesday, May 22nd, 2013

dogdoo

Just doo it: Cleaning up after Fido

About a year ago we reported on a proposed dog tax in the city of Izumisano in Osaka Prefecture. The purpose of the levy was to pay for patrols to enforce a local law mandating that dog owners clean up after their pets. The city’s mayor, Hiroyasu Chiyomatsu, says that because Izumisano is close to Kansai International Airport, the city is a “gateway to Japan” and thus it is embarrassing if the first thing visitors see is dog doo all over the streets.

As it happens, the tax was never passed, since dog owners complained that it was only a minority who broke the law and thus was unfair to punish all of them for the sins of a few. In addition, once it was announced that the patrols were going into effect, the problem actually got worse, since some dog owners misinterpreted the measure to mean that they could leave the droppings behind because the city would be cleaning it up.

So in February the city announced a new strategy. Pairs of inu no fun G-men (dog feces government men) would patrol the city in public vehicles three days a week and whenever they saw droppings on the ground they would place a yellow card on them and leave it there.

If the droppings weren’t picked up for a month, then the G-men would clean it up. The idea is that dog owners tend to walk their pets along the same routes and so will likely see the yellow card and feel guilty enough to clean it up themselves. Only ¥4.6 million has been budgeted for the program, so in order to save money the patrols will be made up of individuals from the local Retired Persons Human Resource Center, whose average age is 75.

So far, the plan seems to be working. In the month before it went into effect, patrols counted 1,736 spots where droppings were left behind, and in the month after it went into effect the number of spots numbered 1,030. Fines will likely go into effect in July.

The ¥1,000 penalty, however, can only be issued when a dog owner is caught in the act — or non-act, in this case. Such issuances may be even be rarer since the patrols only go out in the early morning and late evening. As it stands, many local governments throughout Japan have similar fines for negligent dog owners but few actually collect any money.

There are also other pet problems that the town wants to address, including non-registration of dogs — estimated to be about half — and people who walk their dogs without leashes. About 4,400 people are bitten by dogs every year in Japan.

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