How to address increasing inhabitant tax delinquency as a result of the tax revenue source transfer

The so-called trinity reform (involving comprehensive reforms of national subsidies, local tax allocation and allocation of tax revenue sources) resulted in the transfer of ¥3 trillion of tax revenue sources from personal income tax to individual inhabitant tax in fiscal 2007. While the transfer increased local governments' independent revenue sources, it also increased the potential for tax delinquency. Until the reform, local governments had depended to a significant extent on the transfer of state-collected taxes for their finances. Certainly, securing independent revenue sources is indispensable to the devolvement of power to local governments, but the transfer was likely to increase the incidence of individual inhabitant tax delinquency― this was the fear shared by the writer and local government officials. And our fear proved to be justified. Local tax delinquency, which had been in decline since fiscal 2002, rose again in fiscal 2007 subsequent to the commencement of the tax revenue source transfer. This rise was caused by a ¥130 billion increase in individual inhabitant tax delinquency.

It is feared that local tax collection will be adversely affected by the aftermath of last year's global recession. Nor can any optimism about future collection be entertained. How local taxes can be collected efficiently is an issue that needs to be urgently addressed and resolved by all local governments.

In this paper, I will first examine why individual inhabitant tax delinquency rises; then, based on the cause of such delinquency and the levels of delinquency that existed before and after the transfer, I will consider how local governments should deal with this problem.