Takashi Kuribayashi, Director of Chiba University of Commerce Research Center for Economics

The magnitude 9.0 earthquake that occurred on the afternoon of March 11, 2011 brought a huge tsunami to the Sanriku coast. The Tohoku region suffered a devastating blow, becoming the largest disaster since the war.

The 11th, when the earthquake occurred, was just before the March 15th deadline for filing income tax returns, and the National Tax Agency immediately implemented the "Measures for extending the deadline for filing and paying taxes in areas that suffered severe damage from the Tohoku Pacific Earthquake," and extended the deadline for filing and paying national taxes for taxpayers in Aomori, Iwate, Miyagi, Fukushima, and Ibaraki prefectures, which were reported to have suffered severe damage, based on Article 11 of the National Tax General Law. This also applies to areas other than those mentioned above, where it is difficult for taxpayers or tax accountants involved to file tax returns due to the interruption of lifelines such as the interruption of transportation and communication means and power outages (including planned power outages). In addition, a measure was taken to waive the issuance fee when a tax payment certificate is issued to borrow funds necessary for disaster recovery.

Up to this point, these are natural measures, but the main point is yet to come. Under the current tax system, damage caused by disasters can be covered by "casual loss deductions" or "income tax reductions and exemptions under the Disaster Reduction and Exemption Law," but there are certain limitations on the actual amount of reduction or exemption. For example, "casual loss deductions" can only be carried forward for three years, so the income bracket of an average salaryman whose house was swept away by a tsunami would likely not be able to deduct the entire amount of the damages.

Income tax on individuals should be based on the ability theory as the tax allocation principle, and tax should be levied according to the taxpayer's ability to bear the tax burden. In peacetime, progressive tax is levied on the disposable income remaining after deducting basic deductions (to put it dramatically, the costs necessary to maintain life for one year) from the total income for the year. In other words, even in peacetime, people have no ability to bear the minimum costs of living. Therefore, in times of disaster such as this, further examination of the ability to bear the tax burden is required.

The government is considering a tax system to support victims of the Great East Japan Earthquake and the reconstruction effort, and is moving toward applying the "miscellaneous loss deduction" to the previous fiscal year, 2010. This measure will allow salaried workers to receive a refund of the taxes they paid by withholding in 2010. They are also considering expanding the deduction for donations.

In the wake of this unprecedented disaster, those affected have lost their ability to pay taxes. In theory, it would be desirable to tax all gains and deduct all losses. Therefore, all costs incurred in restoring assets to the same state as before the disaster should be deductible, and the government's efforts in the tax system to support reconstruction are insufficient. Special measures should be enacted immediately to allow victims to fully deduct their losses for a long period of time.