TOKYO -- Japan's longstanding system of stamp tax, which is usually levied by affixing revenue stamps to documents such as mortgage agreements, remains in force, but with exemptions in place for online transactions as well as for certain organizations, the tax has come under scrutiny.
Stamp tax duties become necessary upon the creation of 20 types of documents specified in the Stamp Tax Act, including contracts used for mortgage contracts and other purposes, real estate transfer contracts, and receipts. Only contracts that take a physical form on paper require a stamp tax payment, and online contracts are exempt from this tax. Although the amount of tax differs based on the type of contract or document and its due payment amount, all stamp tax must be paid to the national government in the form of attaching revenue stamps, similar in form to postage stamps, to the documents. There are also documents with fixed amounts of stamp tax, such as 40,000 yen (about $380) for corporate statutes and merger agreements, as well as 200 yen (about $2) for savings accounts and insurance certificates.
Paper bank passbooks require an annual stamp tax of 200 yen per account in addition to printing fees, and major banks with tens of millions of clients can end up shouldering tens of billions of yen annually just for stamp tax.
Such expenses cannot be overlooked, as banks' earnings have been worsening amid the Bank of Japan's low interest rate policy. Mizuho Bank drew public attention after announcing in August that it will charge a handling fee of 1,100 yen from Jan. 18 next year to customers who open a new account and apply for a physical passbook. MUFG Bank also held a campaign where account holders who switched to digital passbooks were rewarded with 1,000 yen.
Real estate brokers, too have advised people to make use of online services instead.
"We recommend banks' electronic contract services. They enable you to sign contracts at home 24 hours a day, 365 days a year. You'll also be exempt from 20,000-yen worth of stamp tax," a 29-year-old broker from a real estate agency in Tokyo told a female client while explaining procedures for taking out a mortgage on her house in early September. The woman was surprised, and selected the option of signing an electronic contract.
"I didn't expect that it would be cheaper depending just on whether the medium is paper or online. The contents of the contract are completely the same. Why is this so?" she asked.
It is said that the concept of stamp tax arose in the Netherlands in 1624 as a means to secure tax revenue following a strained financial situation during the Dutch War of Independence fought against Spain. Japan's first stamp tax was introduced in 1873, and regulations for the current system were stipulated in the Stamp Tax Act enacted in 1967. The system was incorporated as it was deemed that some sort of profit should arise when a contract comes into existence, and the signing party can be viewed as having taxpaying ability.
However, stamp tax is limited to paper documents. Contracts that can be completed via email or online are not subject to stamp tax as the law did not envision the advent of electronic contracts, and there have been no updates to the legislation. Exams to become a certified tax accountant do not include stamp tax as a test subject, as the payment method is simple and does not require tax accountants to become involved in the process. Meanwhile, academic research on the topic has barely been carried out.
Moreover, the exact amount of tax yield is unknown, as revenue stamps are also used to pay for passport application and freedom of information request fees, among other procedures, and the Ministry of Finance mixes up the tallies.
Although stamp tax is a valuable source of revenue for the national government, there has been some criticism over the fairness of the system, due to its exemptions. Paper-based passbooks issued by Shinkin cooperative regional banks, agriculture cooperatives, for example, are exempt from taxation, unlike those made at regular banks. An individual affiliated with one bank criticized the system, saying, "Why must only banks shoulder the burden of stamp tax? Fairness of taxation is not being maintained."
As the number of electronic contracts are estimated to rise amid the coronavirus pandemic, a decline in earnings from the stamp tax is inevitable.
Hiroshi Taguchi, a certified public tax accountant at Aiwa Tax Accountants Corp., pointed out, "It is anticipated that there will be debate surrounding a review of the stamp tax system, which has many contradictions and has not been able to respond to changes in the state of transactions."
A senior official of Japan's Finance Ministry commented, "It is a tax with problems that have been pointed out for quite some time, and there are many aspects that do not conform with the modern age." Nevertheless, the official appeared reluctant for the ministry to review the system, saying, "We are not in a state where we will prioritize or engage in radical reform."
(Japanese original by Shiho Fujibuchi, Business News Department)