A friend sent me this frantic email the other day, in a bit of frugal crisis: “I got a nasty surprise in the mail yesterday – a very, very large tax bill from a city in Saitama. It’s not even the city I live in!! What gives?”
This individual recently moved from Saitama to another part of Tokyo, and has also recently started working from her home as a part-time English teacher after quitting her well-paid job as a trainer with a large English school in June. My friend was naturally troubled as she’s taken a major cut in income, but was just hit with a large tax bill. Indeed, what gives?
Well, the public payment (taxes, health care, and pension) systems in Japan are fairly confusing, but an understanding of them can help both explain and avoid the above situation. The most important thing to understand is that most Japanese citizens rarely have to bother with filing a tax return or figuring out their taxes themselves: companies do this (called ‘nenmatsu chosei’) at the end of every year for their employees, and adjust their pay accordingly. If you are a full-time or near full-time employee, chances are your company calculates both your income taxes (shotokuzei) and local taxes (jyuminzei), and pays them from deductions in your salary, without you ever noticing. (Local taxes are also known as resident taxes).
So, why the sudden large tax bill? If you are required to pay local taxes, the city you reside in on January 1 of each year will be the city you owe. Resident taxes in Japan are calculated based on the previous year’s income. Thus, the local taxes you pay in 2004 are based on your 2003 (Jan-Dec 2003) income. For salaried persons, these taxes are automatically withdrawn from your salary starting in June of that year, and are paid every month until May of the following year.
So why the big tax bill? When she quit in June 2004, my friend still owed payments for a full year of residents’ taxes, based on her 2003 salary. As her company was no longer making the payments by withholding the money from her paycheck, she was now responsible for paying the tax herself.
Even after she moved to another city, she still owed taxes to that city as she was an official resident there on 1 January 2004.
For foreigners, the rules are special: you are not required to pay Japanese local taxes for your first year of residence in Japan. After that year, you are now liable for local (or residents’) taxes.
As to how to avoid paying the tax: good luck! If you are leaving Japan and unlikely to ever come back again, it will be hard for the local tax office to find you. It might make it difficult for you to receive a pension tax refund, however (though this is uncertain, as the local tax offices and national pension agency don’t seem to talk to each other much).
If you are staying in Japan and are having difficulty paying the tax due to financial hardship, bring your tax bill (it comes in a small booklet with tearoff sheets, though the color differs by locality) and your most recent salary statement and/or a ‘taishoku shomei sho’ (official document saying you’ve left your job) to the ‘jyuminzei ka’ (resident’s tax office) window of the town or city you live in. In most cases, some explanation on your part, and proof that you really can’t pay the bill, will often persuade the tax man to lower or cancel your bill altogether. However, I don’t recommend
this unless you really cannot pay the bill.
© 2004 Wendy J. Imura.