As the year winds down to a close, you might find a nice little surprise in your paycheck for December. It’s called ‘nenmatsu chousei’ — and simply is a tax payback (or payment, in some cases) carried out at the end of the year in Japanese companies for employees. While Americans and other foreign residents of Japan may be more used to filling out tax returns every year, most Japanese people don’t do that. Instead, their companies automatically do an ‘audit’ at the end of the year, resulting in a little bonus in their December paychecks. If you work as a regular or contract employee for a Japanese corporation (or foreign company that pays according to the
Japanese system), this might apply to you.
Unfortunately, the winds of change are blowing around Japan’s tax system, and the outlook is not good, especially for salaried folks. Although Japan’s tax policy for the next few fiscal years is usually revised in December, the latest round of changes was a doozy. I thought I’d outline some of the major changes for my Frugal Readers, as knowing what’s going on with your paycheck is
a very important issue in controlling how you spend, and save, your money.
The biggest issue for 2004 was a reduction in fixed-rate income tax cuts, or ‘teiritsu genzei.’ In 1999, the government passed a law cutting income tax rates by 20%, and local tax rates by 15% across the board. This was supposedly a permanent tax cut measure aimed at jump-starting the economy during the Obuchi administration. Unfortunately, Japan’s government deficit is ballooning, and these tax cuts will be halved starting in 2005, and fully repealed in 2006. This is bad news, mainly for higher income families — a two-parent, two-child family earning 7 million yen a year would see an increased tax burden of 80,000 yen per year (estimated).
This major increase in taxes unfortunately coincides with a number of other tax/social welfare payment hikes scheduled to begin in 2005/2006. Corporate pension premiums (kosei nenkin) are forecast to edge upward every year from 13.934 percent until reaching 18.3 percent in 2017. Japan’s tax exemptions for dependent spouses are also set to be phased out, and contributions to unemployment insurance and national health insurance are forecast to rise. According to the Nikkei Shimbun, it is expected to raise the burden on taxpayers by 1.6 trillion yen altogether.
So, in short, taxes are going up. But, the tax hikes have been constructed in ways you are unlikely to notice — small, incremental deductions to your paycheck every month.
My advice is to read your pay stub carefully, and save them for at least several years to keep track of how much is being deducted. If you have a hard time understanding your pay stub, use an English/Japanese dictionary to help you get a rough idea of the terms, at least. Knowledge (even of how your taxes are going up) is power.
© 2004 Wendy J. Imura.