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Real estate taxes in Japan: Tool to curb soaring land pricesThe price of land in urban areas of Japan has tripled in the past decade, producing a fairly small number of wealthy landowners but putting homeownership out of the reach of most people. Soaring real estate prices and taxes have been hotly debated topics for nearly a decade in Japan. As in many other countries where healthy economic conditions lead to real estate speculation and sharp increases in land values, the Japanese government has tried to pass new property taxation laws. Tax increases were designed to depress land values, along with increasing revenues to the national and local levels of government. These are some of the findings of a study of real estates taxes in 14 countries published in the book, "An International Survey of Taxes on Land and Buildings," by Joan M. Youngman and Jane H. Malme of the Lincoln Institute of Land Policy in Boston. The Japanese government has developed a number of measures and programs to attempt to reduce real estate prices, or at least to slow the rate of increase. The most promising of these measures is generally considered to be the National Land Value Tax. Five years ago, the Japanese government adopted a new tax on land ownership in an effort to stabilize prices and to improve the efficiency of land use. The Land Tax Deliberation Committee established in 1990 proposed the new tax law on real estate. The committee had considered increasing the existing local property tax, but then decided that the national government could best achieve uniformity by administering the tax, which was proposed at a rate of 0.5 percent to 1.0 percent of the assessed value. Although the ruling Liberal Democratic Party accepted the basic recommendations, it chose to enact the new tax law at a lower rate. This national tax has a rate of 0.3 percent (0.2 percent the first year) of the assessed value used for inheritance tax, which is 80 percent of the market value. Individuals and small to medium size companies are exempted from this tax for properties with market values below a threshold, as are residential properties with less than 1,000 square meters. These legislative efforts have had a major impact on local tax policy. The changes include an increase in the assessment ratio for the fixed asset tax from a wide-ranging ratio of 15 percent to 60 percent of market value to a ceiling of 70 percent. To moderate the increases in real estate taxes, the national government has considered legislation that would increase the deduction for residential real estate, and then apply adjustment factors to land that has had extraordinary increases in value. As a result of these measures and other fine-tuning of the taxation laws, the average tax increase on real estate is expected to be no greater than 5 percent. Local tax officials collect information on ownership, land and building characteristics and property sales. Property ownership records are gradually being computerized, but parcel maps are still in paper form. The absence of digital parcel maps is surprising because Japanese firms have been among the world's major developers of geographical information systems (GIS) software for producing vector parcel maps from scanned digital images of paper maps. At the national level, the Japanese Ministry of Finance is responsible for the administration of national taxes on real estate. The Ministry of Home Affairs has the responsibility for research, planning and drafting of laws concerning local property taxation. With the exception of the real estate acquisition tax, all local taxes on real estate are levied at the local level. A national law on local taxation provides the framework for taxation of real estate by local governments. This law prescribes the methods of assessment and collection for each tax by local governments, which administer and receive the proceeds of four separate real estate taxes. These four property taxes are acquisition, ownership, corporation, and sales. As elsewhere in the world, the land itself is not eligible for depreciation. However, according to the Mitsui Fudosan Co., a leading commercial real estate brokerage, the depreciable basis of buildings and other improvements is longer in Japan than in most other real estate markets. Office buildings have a depreciable life of 65 years, while shops and hotels are allowed 47 years for depreciation. International real estate brokers and investors will get a first-hand look at Japanese real estate prices later this year. The International Real Estate Federation (headquarted in Paris and known by its French acronym FIABCI) will hold its annual convention in Tokyo May 25 through May 31. FIABCI has 5,300 members from 55 countries. Other articles in this series: Real estate taxes in Chile |
By Kenneth V. Smith