Typical Japanese taxes at 3.6 million yen in earnings. Any disagreement?

An individual in Japan who makes 3.6 million yen (USD $36,000 at JPY100/USD) gets an exclusion of JPY 1,250,000. Their net is 2,340,000.

A personal deduction of JPY 380,000 is available. So the net drops to 1,960,000.

If that individual is enrolled in Shakai Hoken, about 12% of the original 3,600,000 is paid toward that. So that is 432,000 yen. It’s also a deduction against taxes. The net taxable drops to 1,528,000 yen.

Two taxes will be assessed on the 1,528,000 yen. One is the national tax, which at 1,528,000 will be 5%. This is 76,400 yen.

The other will be resident’s tax. Other than a small per capita, the rate will be 10%. So 152,800 yen.

The person who makes 3.6 million yen then will pay, in the end:

JPY 432,000 social insurances
JPY 76,400 national tax
JPY 152,800 residents tax.

This is totaling JPY 661,200 and represents 18.37% of the gross.

Any additional earnings above the 3.6 million yen will see a marginal tax-and-insurance rate of about 20.7%. This is because the insurance is deductible, and there is the generous exclusion referred to at the top, which rises as income rises. The algebra for that is:

5% national tax times 70% net of increased exclusion, or (.05)(.7) = 3.5%
10% resident’s tax times 70% net of increased exclusion, or (.1)(.7) = 7%
12% estimated social insurance, deductible against other taxes, or (.12)(.85) = 10.2%.

Those three items together sum to a 20.7% marginal rate, all inclusive.

People going around saying that Japanese taxes plus social insurance “quickly rise to 38% or more!” are full of it. When they put themselves out as big businessmen, or longtime successful businessmen, it makes me suspicious why they can’t do that simple algebra. If they are running a payroll and paying social insurance for their employees, they should know this.

Fact is, taxes in Japan at modest income are lower than they are in America. At modest incomes, increased income is taxed at a lower effective rate than it is in America.

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3 comments

  1. GariGariKun · August 30, 2013

    The calculation looks about right. And, it matches the examples provided by the Japanese National Tax Agency here: http://www.nta.go.jp/taxanswer/shotoku/2260.htm However, NTA also provides the whole spectrum of calculations up to income levels over Y18,000,000 where the effective rate does hit 40%. I haven’t heard anyone claim that the taxes for someone making Y3.6 million were around 40% but I have heard people making Y20 million and more complaining about the rate being in the 40% (I do not expect there would be much sympathy for their condition on their blog – they may not necessarily qualfy as a 1%-er but they are certainly getting closer than the entry level English teaching wage earner making Y3.6 million)

    In SIngapore, where quite a few of these acquaintances worked previously, the effective tax rate for someone making around Y3.6 million or around $46,730 Sing dollars would be around 7%. Making Y18,000,000 or around $233,650 Sing dollars would mean only a tax rate of 18% and anything over $320,000 Sing dollars (or Y24.5 million would only give you a tax rate of 20% max [roughly half of what Japan would demand].

  2. James Annan · September 3, 2013

    Thanks for this post. I’ve long been puzzled about the discussion concerning Japan’s “high” taxes, and as a result even sometimes wondered if my taxes here were incorrectly calculated. I take home about 75% of gross (on a rather higher salary than you used), and that is after a deduction for (subsidised) rent of a “company apartment”. In the UK, I would take home about 70% on a similar salary (if I could get it!), with several percent more to go on local tax and pension contribution (which was ignored in the on-line calculator I used). Japanese taxes seem unrealistically low to me, given the state of the country’s finances!

    • hoofin · September 4, 2013

      Thanks for the comment, James. What you say is what I’ve suspected for a while. Even by American standards, taxes in Japan are rather low. Although for this example, this could be because American taxes are less progressive than in Japan (i.e. lower income in America pays a higher overall rate, and a higher marginal rate).

      I can’t shed a tear about the consumption tax going to 8% to help fund pension payments there. In America, wages get hit for over 10% (5.3% employee and 5.3% employer, Federal Insurance Contributions Act, or FICA). This is before the employee even sees the cash.

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