People in Japan who win prizes through the lottery (takarakuji) do not have to pay taxes on their gains, even if they win hundreds of millions of yen. However, people who win money betting on horses or other racing sports are required to report those earnings on their income tax returns. Why the distinction? Is it a difference in approach? Though both are forms of gambling, which is strictly circumscribed, lotteries are purely matters of chance, while betting on the ponies can involve calculation and experience. Only the tiniest fraction of the population could make a “living” from the former, by essentially winning a jackpot once, while there is a small but dogged subculture whose members at least like to think they can profit continually at the track.
One person recently found out just how limited such a livelihood can be. A 39-year-old salaryman, whom the media hasn’t named, was recently indicted in Osaka for tax evasion. The man’s lawyer has told the press that he makes ¥8 million a year at an unspecified job. He is married and has one child with another on the way.
In 2006 he started spending enormous amounts of money on horse racing based on the belief that he could make a profit over time. Using software that “predicts winners,” he would analyze the statistics for individual horses and then bet on multiple contestants in individual races through the internet. He would not bet on races with horses making their debut since there wasn’t enough data available, but almost anything else was acceptable.
The point was to bet as much as possible on as many “favorable” horses as he could, including combination tickets. He lost most races, but he made enough on winning bets to pool that money and then use it for the next series of races. This sort of continuous overkill methodology meant that in the long run his winnings grew exponentially. During the three-year period from 2007 to 2009, he bought ¥2.87 billion worth of tickets and received winnings of ¥3 billion, thus making a net profit of ¥140 million.
However, he didn’t report these earnings on his tax return and eventually was audited by the Osaka branch of the National Tax Bureau. The amount they cited him for was not the ¥140 million he netted, but rather ¥2.9 billion — the ¥3 billion he grossed minus an expenditure of ¥100 million. Thus his tax bill for the three years is a whopping ¥570 million, and with the added penalty it comes to a total of ¥690 million.