Last year-end, the government andruling parties agreed in principle todiscuss the introduction of a taxpay-er identification (ID) number system.The ruling coalition spelled out theidea in its December outline for taxsystem reform for fiscal 2009, whilethe mid-term program for drastic taxreform that was approved at a Cabi-net meeting also referred to the idea.The debate has been spurred by theapproval of the government’s pack-age of fixed-amount handouts tohouseholds, which will cost 2 trillionyen in taxpayers’ money. While thecontroversial plan continues to cre-ate a ruckus, properly speaking, I be-lieve the most effective way to spendthe money would be to limit the hand-outs to low-income earners and peo-ple who are struggling to make endsmeet.The government gave up on theidea of setting an income cap on re-cipients because it would take toolong to identify eligible low-incomeearners. Information about the in-comes of wage earners and self-em-ployed workers is brought to localgovernments, but it is far too oner-ous to identify taxpayers individual-ly and calculate the total income ateach household. Hence the argumentthat a taxpayer ID number systemcould enable authorities to quicklydiscern information about a person’sincome and use it to alleviate thewidely-felt sense of injustice about
tax burdens.To help tax authorities determinetaxpayer income, companies and in-dividuals that made payments to tax-payers in specified transactions, suchas contracts with lawyers and otherprofessionals, along with paymentsin real estate sales or rental deals, arerequired to submit the paymentrecords. Exployers are required to filecertificates that show how much com-panies paid to each worker in annu-al wages and allowances afterdeducting amounts equivalent to tax-es. Tax authorities check the submit-ted documents against the names andaddresses on income tax returns filedby taxpayers to calculate the exactamount of tax that should be paid.In order to make this system work,authorities have to ensure that nameslisted on records accurately identifyindividual taxpayers. They also needto confirm that the listed data match-es up with information given in taxreturns by using computers to siftrapidly through a vast amount of in-formation.The question that needs to be asked,then, is this: What kind of informa-tion should be gathered with the aidof ID numbers?Up to now, debate has been di-rected largely to the issue of im-proving the efficiency of taxadministration and ensuring fair tax-ation of inherited and other assets. Inshort, it attached greater importanceto the convenience of tax collectorsthan that of taxpayers. As a result, the
idea of tax authoritiesgaining access to in-formation such asbank account balancesneeded for taxation onassets triggered awave of angry objec-tions from people whofeared the governmentwas invading their pri-vacy and trying totighten its grip on them by assigningthem ID numbers. Japan consequentlylagged behind other industrializedcountries in introducing the system.To avoid a repeating of this prob-lem, discussion this time needs to fo-cus on how the system would benefittaxpayers in simple black and whiteterms.For example, the system would en-able implementation of policy thatcombines tax reduction and paymentof benefits. Taxpayers can benefitfrom tax cuts while low-income earn-ers who are exempt from tax pay-ment can receive handouts. Such atax deduction system, combined withbenefits, can be introduced to sup-port the working poor and child-rear-ing families. Similar systems are already in placein the United States and Europe. It isa well-designed system that can alsohelp ameliorate the regressive natureof the consumption tax—which hasa greater impact on the poor than therich—and address the issue of unpaidpublic pension insurance premiums.In Scandinavian countries and
France, tax authorities notify taxpay-ers of their personal income based ontheir ID numbers. It allows taxpay-ers to file tax returns by simply con-firming the information provided bytax authorities.In advancing this debate, as an ini-tial step, why not consider the intro-duction of a social security numbersystem for management of social se-curity-related information, an ideathat has been discussed in connec-tion with pension system reform?Then we would be able to considerusing the social security numbers toidentify taxpayers. While many peo-ple are cautious about or oppose theintroduction of social security num-bers, to play fair, this hurdle must becleared.The biggest problem that comeswith introducing an ID number sys-tem is the threat it potentially posesto privacy. I believe, though, that wewould be able to overcome this bytaking measures, such as the legisla-tion of a basic law for the protectionof privacy that embodies the spirit ofthe Constitution. Also needed are awatchdog organization to keep an eyeon the administration to prevent useof the numbers for improper purposesand a ban on the use of the taxpayerID numbers for purposes other thantaxation.
The author is a Chuo Universityprofessor specializing in taxation lawand a chief research fellow with theTokyo Foundation.
POINT OF VIEW/ Shigeki Morinobu
The Asahi Shimbun
Morinobu
Taxpayer numbers would deliver justice for all