Under the fixed-rate tax reduction system that began in June 2024, local governments will play a major role in implementing the project, along with businesses. This is because, in addition to the administrative duties for reducing resident taxes, local governments are responsible for ``adjustment benefits'' for income tax reductions, which involve complex calculations.
If a person eligible for a tax reduction is not expected to be able to fully deduct the amount of the tax reduction from their 2024 income tax, the difference will be estimated and paid in cash. This is called ``adjustment benefits,'' and the government estimates that 23 million people are eligible.
This corresponds to just under 40% of the 60 million taxpayers eligible for the tax reduction. Local governments will be burdened with the largest amount of administrative burden on the government since the 100,000 yen special fixed amount handout that was given to all Japanese residents during the coronavirus pandemic. At the same time, there is also a low-income benefit'' as an economic measure, but the system is simple.
It is much lighter than the administrative burden of adjusting benefits under fixed tax reduction.
There are also concerns that mistakes may occur because the administrative work of the basic local governments (municipalities, wards, towns, and villages) that are in charge of practical matters will become complicated. Tax accountants and other experts have pointed out that ``Taxpayers should check for themselves whether the amount of tax reduction is correct based on their pay slips and notification documents from local governments.'' Local governments are being asked how they can speed up the disbursement of benefits while preventing operational errors.
There are two main administrative tasks for local governments in response to the fixed tax reduction. These are the calculation and notification of resident tax reflecting the tax reduction amount of "10,000 yen per person" and adjustment payments to people who cannot apply the full amount of the income tax reduction of "30,000 yen per person".
The administrative tasks for the resident tax reduction were almost completed by May 2024. Municipalities are sending "resident tax determination notices" to companies and other organizations informing them of the amount of resident tax reflecting the tax reduction. Salaried workers are distributed through their employers from late May to June. The determination notice can be used to check the monthly resident tax amount after the tax reduction is reflected, along with the pay slip from June that clearly states the income tax reduction.
Local governments have begun the other administrative task of adjustment payments since June 2024. They estimate the income tax for 2024 for each resident, which is not usually handled by local governments, and determine who needs adjustment payments. The timing of payments varies depending on the local government, and in some cases it will be as early as early July, but in many cases it will be August or later. This is because each local government has different payment methods and procedures. The amount of the payment will be calculated by rounding up any amount that is not covered by tax reduction to the nearest 10,000 yen. This is said to be "to reduce the administrative burden on local governments" (Cabinet Secretariat 2023 Economic Stimulus Payments Office).
However, the payment amount notified is a provisional amount. Local governments will re-determine the correct amount of the adjustment payment around May or June 2025 based on final annual income for 2024 and information on dependent relatives. If the payment is insufficient, the shortfall will be rounded up to the nearest 10,000 yen and the payment will be paid again. This means that local governments will be responsible for payment administration twice, in the summer of 2024 and the summer of 2025.
