Japan's local govts miscalculated tax refunds

Japan's local govts miscalculated tax refunds

Local governments have miscalculated interest on refunds for overpaid residential tax and other taxes, which at one point resulted in incomplete refunds totaling ¥1.51 billion (S$17.3 million) in at least 544 cities, wards, towns and villages, according to The Yomiuri Shimbun survey.

The municipalities are located in Tokyo and 41 other prefectures, and the figure accounts for about 30 per cent of the nation's municipalities. The central government on Tuesday submitted to the ordinary Diet session a bill to revise the Local Tax Law to amend the method for calculating interest on refunds.

Currently, there are two calculation methods: one for salaried workers and the other for individual owner-managers. For individual owner-managers, the period used to calculate interest on refunds is shorter than for salaried workers. However, the municipalities that made an error in the calculation applied the method for individual owners to salaried workers, thus leaving the interest on refunds for salaried workers less than it should have been.

Under the refund process, certain amounts are initially deducted via income tax, and then the applicant will receive refunds for the residential tax based on the taxpayer's application.

Under the current law, the calculation of the interest on refunds for salaried workers starts from the day after the taxpayer paid the residential tax. However, for individual owner-managers, the calculation starts from one month from the day after a notice is given to the taxpayer from the taxation office that their income tax had been reduced.

The miscalculation first surfaced in June 2012 in Sugito, Saitama Prefecture, according to The Yomiuri Shimbun survey. Despite the fact that similar miscalculations were found in other municipalities, the Internal Affairs and Communications Ministry failed to notify local governments or ask them to conduct investigations, allowing the miscalculations to continue across the nation.

The Yomiuri Shimbun has conducted a survey on self-investigations conducted by municipalities from June 2012 to December 2014 that have been made public or have been reported to local assemblies.

Among the 544 cities, wards, towns and villages, 541 municipalities have finalized the amount of unpaid interest on refunds and begun repaying taxpayers in full.

Three cities in western Tokyo - Komae, Kodaira and Koganei - are making calculations on the amount they have to refund.

The revised law will change the start date for calculation of the interest on refunds for salaried workers to about one month from the day after the taxpayer applied for a tax refund, making the period about the same as that for individual owner-managers.

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