Boston University School of Law

Biometrics, Certified Software Solutions, and the Japanese Consumption Tax: A Proposal for the Tax Commission

Richard Thompson Ainsworth

Boston University School of Law Working Paper 06-45

Abstract

Significant change is anticipated in the Japanese Consumption Tax.  The Japanese Tax Commission is recommending that the rate should double, multiple rates should be employed, and the “bookkeeping method” of accounting should be abandoned in favor of the European “invoice method.”    

The Tax Commission faces a tax policy dilemma.  The aging population drives the need for a tax increase (making the Consumption Tax an obvious target for revenue enhancement) at exactly the same time the population is shrinking in overall size, thereby reducing the number of working-consumers who can pay the higher tax.

These are dramatic changes for the Japanese Consumption Tax.  While revenue needs drive the primary change (the rate increase), it is the inherent regressivity of the tax that drives the second (the adoption of multiple rates).  The third change (the use of an invoice method of accounting) is an inevitable consequence of multiple rates.  Thus, aside from the rate increase itself it is the structural regressivity of this tax on consumption that is the driver of the most significant of the proposed structural changes.  Can this inherent characteristic be changed?

This paper proposes a way out of this dilemma.  It proposes the adoption of certified transaction tax software at the point of (final) sale, and the distribution (for voluntary use by the needy) of IDs embedded with (a) digitally recognized biometric identifiers and (b) digital tax exemption certificates.  Rates could then rise without excessively burdening the poor, elderly and handicapped.

The Australian use of a software registry, and the Brazilian experiments in e-invoicing are contrasted.

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Richard Thompson Ainsworth Contact Information
vatprof@bu.edu
LL.M. Tax Program
Boston University School of Law
765 Commonwealth Ave
Boston, MA 02215
USA

Phone: (781) 773-1052

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