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Semi-Off-Topic but related to Opex vs Capex: One of the weird aspects of Japanese tax law is the Capital Assets tax. Every year your local city taxes any capit

Semi-Off-Topic but related to Opex vs Capex: One of the weird aspects of Japanese tax law is the Capital Assets tax. Every year your local city taxes any capital goods at 1.5%. What is a capital good? Anything which takes multiple years to deduct. A couple examples: Cars, Machines, Factories. A couple odd examples: desks, chairs, TV, elevators. In the past other first world countries had such capital goods taxes but removed them. It seems so counter intuitive to punish companies for building capital. After all capital and acculumation of capital is what pushes productivity. I suspect it, as so many other aspects of Japanese tax law, is about solving perverse incentives: no one goes around misclassifying opex as capex when there is a capex tax...

gruez 5y ago
>It seems so counter intuitive to punish companies for building capital. After all capital and acculumation of capital is what pushes productivity. OTOH, wealth taxes seem to be gaining popularity in the western world. Maybe we're going full circle?
- Danieru 5y ago
  Indeed, I almost wrote wealth tax when describing the tax. The difference being I think that capital goods in relation to taxes are most about depreciation. The capital account is meant to be decreasing. The business optimal situation is for a capital good's book value to reach 0 while the productive use continues unchanged. Thus the business got to buy the machine without paying income taxes on the investment. Thus from the tax office's perspective handling of capital goods is about preventing too-fast depreciation and or over investment. By such logic any dollar spent on capital goods is a dollar not booked at profit and thus taxed. About 1/3 of Japan's national tax revenue comes form corporate income tax. Oddly enough, while the capital goods tax is levied by the town, towns do not control their own tax policy. Instead the federal level dictates the exact tax rates down to the prefectural and city level. Thus in Japan there is little room for the tax centric competition we see in the US. Towns cannot negotiate tax exceptions with industry. Instead the only instances of regional tax preferences in force now were written at the federal level to give various incentives to rebuild the Touhoku region after the tsunami of 2011. Thus while the town may tax capital goods it is the federal tax authority (NTA) which benefits from the increase in profits.
conductr 5y ago
Could be a preference for labor embedded in there
dangrossman 5y ago
My US county (Wake County, NC) has such a tax... worse even. Each year I have to catalog every pencil, pen, paperclip and ream of paper in my office. The desk, tables, shelves, printer ink, bottle of windex, each of my books, even individual USB cables all need to be listed. I need years acquired and purchase prices for every little object owned by each of my 4 businesses. Each summer, a tax bill shows up for my personal property. I generally don't mind taxes. I really don't. But this one I hate. It's such a colossal waste of time that I can't even hand off to an accountant.
- Danieru 5y ago
  Wow that is indeed horrible. In Japan anything under 3k USD (30万円）would be discounted instantly and thus not count towards the capital tax. Furthermore there is a 15K USD （１５０万円）cliff below which no capital is levied but reporting is still required. Reporting down to the pen sounds horrible, and uncompetitive if other counties do not levy the same.
- aasasd 5y ago
  Sounds like it would be much easier to reincorporate in a neighbour county. I don't know, of course, if the US law gives a damn about you not being located there.
  - dangrossman 5y ago
    US law does care where you're located. Physical nexus means the local county can tax me. The business is actually domiciled in another state where I used to live.

gruez 5y ago

>It seems so counter intuitive to punish companies for building capital. After all capital and acculumation of capital is what pushes productivity. OTOH, wealth taxes seem to be gaining popularity in the western world. Maybe we're going full circle?

Danieru 5y ago
Indeed, I almost wrote wealth tax when describing the tax. The difference being I think that capital goods in relation to taxes are most about depreciation. The capital account is meant to be decreasing. The business optimal situation is for a capital good's book value to reach 0 while the productive use continues unchanged. Thus the business got to buy the machine without paying income taxes on the investment. Thus from the tax office's perspective handling of capital goods is about preventing too-fast depreciation and or over investment. By such logic any dollar spent on capital goods is a dollar not booked at profit and thus taxed. About 1/3 of Japan's national tax revenue comes form corporate income tax. Oddly enough, while the capital goods tax is levied by the town, towns do not control their own tax policy. Instead the federal level dictates the exact tax rates down to the prefectural and city level. Thus in Japan there is little room for the tax centric competition we see in the US. Towns cannot negotiate tax exceptions with industry. Instead the only instances of regional tax preferences in force now were written at the federal level to give various incentives to rebuild the Touhoku region after the tsunami of 2011. Thus while the town may tax capital goods it is the federal tax authority (NTA) which benefits from the increase in profits.

conductr 5y ago

Could be a preference for labor embedded in there

dangrossman 5y ago

My US county (Wake County, NC) has such a tax... worse even. Each year I have to catalog every pencil, pen, paperclip and ream of paper in my office. The desk, tables, shelves, printer ink, bottle of windex, each of my books, even individual USB cables all need to be listed. I need years acquired and purchase prices for every little object owned by each of my 4 businesses. Each summer, a tax bill shows up for my personal property. I generally don't mind taxes. I really don't. But this one I hate. It's such a colossal waste of time that I can't even hand off to an accountant.

Danieru 5y ago
Wow that is indeed horrible. In Japan anything under 3k USD (30万円）would be discounted instantly and thus not count towards the capital tax. Furthermore there is a 15K USD （１５０万円）cliff below which no capital is levied but reporting is still required. Reporting down to the pen sounds horrible, and uncompetitive if other counties do not levy the same.
aasasd 5y ago
Sounds like it would be much easier to reincorporate in a neighbour county. I don't know, of course, if the US law gives a damn about you not being located there.
- dangrossman 5y ago
  US law does care where you're located. Physical nexus means the local county can tax me. The business is actually domiciled in another state where I used to live.