Income Tax Act (Shotokuzei Hō)
The Income Tax Act (Shotokuzei Hō) governs the taxation of individual income in Japan. Enacted in 1965, the Act establishes the framework for calculating taxable income, tax rates, deductions, and collection procedures. Japan operates a progressive income tax system with rates ranging from 5% to 45%, plus a reconstruction surtax. The Act classifies income into categories (employment, business, real estate, interest, dividends) and provides various deductions for dependents, medical expenses, and other items.
Legal area: Law governing the assessment and collection of taxes.
Year enacted: 1965
Full text: https://elaws.e-gov.go.jp/document?lawid=japan-income-tax-act
Key Provisions
- Part I: General provisions (definitions, scope)
- Part II: Categories of income (employment, business, etc.)
- Part III: Computation of taxable income
- Part IV: Deductions (personal, dependents, medical)
- Part V: Tax rates and tax calculation
- Part VI: Withholding tax system
- Part VII: Filing and payment (blue return system, final return)
Significance
The Income Tax Act is the primary source of individual tax revenue in Japan. The progressive tax system has been amended numerous times, with the highest marginal rate increasing from 50% to 65% following the 2011 earthquake and tsunami. The Act’s withholding system requires employers to withhold tax from employment income. The blue return system provides preferential treatment for business operators who maintain proper accounting records. The Act has been reformed to address international tax issues and the digital economy.