Passport blues

I have procrastinated for months in getting a new passport, even after my old one expired at the end of June, because the cover came off and it therefore counts as too damaged for a postal renewal. So, I finally found my birth certificate and biked over from my nice new (as of just over a week ago) residence in the Bedford-Stuyvesant neighborhood of Brooklyn down to the very lovely main Brooklyn Public Library at Grand Army Plaza in Prospect Park, where the most convenient all-day-long passport application center is located.

Upon arrival, I realize I forgot my printout of the application form at home, but no matter; I can easily fill it out again. After all, it would be silly to go all the way back home for my neatly printed printout of the filled-out-online PDF version of the form. And so I fill out all the forms again, whereupon the agent checks my documentation, She is at first suspicious that my birth certificate is merely a photocopy, and therefore invalid, but I show her—no ma’am, you can see that there is a faint, but genuine raised seal upon the surface—and she acquiesces.

But then a curveball. I am told that because my state ID ((Non-driver’s license state ID. Yes, that is something I never did at all.)) is less than 6 months old, the State Department does not have the updated records and it is therefore not a complete and valid form of identification, necessitating an alternate and more comprehensive approach to the application process. My options are laid out: I need to either go home and find the expired ID card or make an affidavit application.

What is an affidavit passport application you ask? I have heard of affidavit voting, you may think. All you have to do is fill out one extra form attesting that you are not a lying scoundrel, and they will put your vote in the pile that they will look at if they get bored. Surely an affidavit passport application is no more of a burden? In fact, it is.For you see, it is not the applicant who completes the affidavit, but the witness attesting to the applicant’s identity. That is, I would need to bring a relative or long-standing acquaintance with me to the application office, this person would need to present his or her identification, and sign an affidavit swearing to be a relative or long-standing acquaintance of mine, whereupon my application would be accepted.

Having no desire to subject another individual to such a dreary procedure, I cycle back home, stopping only shop at the Duane Reade for sundries I have been delinquent in purchasing, and being a frantic search for the expired card. Having just moved over a week ago I expected the search to be fruitless, but luckily I discovered the card in a matter of minutes, on a table, unexpectedly laying underneath a hat.

And so, the story ends with far more annoyance than drama, yet another example of the seemingly endless procedures to which all we citizens are subjected by the splendiferously tentacled bureaucratic state, and an anecdote which I hope will prove to be of some small amount of education to the reader.

Seven things I didn’t know about the consumption tax

In the last few months I have been reading up a lot on Japanese tax law, and have come across the following interesting facts about the consumption tax:

1. The national consumption tax rate is only 4%. There is also a uniform local consumption tax defined as 25% of the national tax; the two taxes are added together to form the 5% figure that everyone pays. The local consumption tax is split evenly between the prefecture and municipality where the applicable good or service was sold.

2. Not all of that 5% goes to the government. Businesses always take the full 5% from their customers (so long as those customers are located in Japan) but only pass on a fraction of this amount to the government. They can deduct any consumption-taxable expenses—inventory, materials, machinery, fees and the like—from their consumption-taxable revenues, and pay 5% on this net amount. The idea is to charge a total of 5% tax on the final value absorbed by consumers regardless of how many middlemen were involved in getting a product/service to the consumer. Businesses generally tally up their consumption tax bills on a quarterly basis.

3. Small businesses get pretty sweet tax breaks. Businesses with annual sales of less than 50 million yen can choose to keep anywhere from 10% to 50% of the consumption taxes they charge, regardless of their actual deductible expenses. The permitted amount depends on the type of business: wholesalers keep the least while service businesses keep the most. This is a really good deal for small service businesses, since their biggest expense is usually personnel, and most personnel costs (salary, social insurance, etc.) are not subject to consumption tax. Businesses with annual sales of less than 10 million yen get an even better deal: they are completely exempt from paying consumption tax. So in quite a few cases, part of the 5% paid by the consumer is effectively absorbed by smaller suppliers and subcontractors in the value chain.

4. Consumption tax applies to imports into Japan, whether for personal or business purposes, though the rules for this are very complicated. If you are bringing valuables into Japan as an individual, the 5% tax is calculated against a “taxable value” on the item, which is usually 60% of the retail price paid overseas. This is technically separate from customs duty, but is charged as part of the same inspection process and is superseded by customs duty where customs duty applies (i.e. to alcohol, tobacco and single items valued at more than 100,000 yen). You don’t have to pay consumption tax on anything within your duty-free exemption. Here is an example of how the calculation works.

5. Consumption tax arguably creates a government subsidy for large exporters. This is because exports are not subject to consumption tax in Japan (though they may be subject to consumption tax in the importing country). So when a company like Toyota or Sony totals up their consumption taxes, they usually end up having more taxable expenditures than taxable sales, resulting in a consumption tax refund. Quite a few companies get hundreds of millions of yen a year refunded this way.

6. It’s possible for Japan residents to get a consumption tax exemption for items in excess of 10,000 yen which are to be taken overseas. This is different from the exemption for foreign tourists and comes with a bunch of qualifications, among them that the item must be a gift for someone else or to be used or consumed by the resident outside Japan, and that it must be sold at some kind of “export store” (輸出物品販売場). I might look into this further if I ever get around to buying a washlet for my parents’ house.

7. Consumption tax was introduced in 1989. Most Western European countries adopted some form of consumption tax in the early seventies, and the idea had been floated by the Japanese government as early as 1978, but nobody acted on it until the height of the bubble. The initial tax rate was 3%, all of which went to the central government. The coalition government in the early nineties proposed hiking the tax to 7% but almost immediately back-pedaled due to negative public reaction. The current 5% rate, including the local consumption tax, became effective in 1997 after the LDP returned to power.

Why raising the consumption tax is a good idea AND good politics

The following is a lightly edited version of my e-mail reply to a friend who asked about the ongoing fight over passing a hike to the consumption tax. As of this writing the bill has passed the lower house but has still not become law. See Japan Real Time for a good breakdown of recent events:

The consumption tax was definitely too low for a country with such generous welfare benefits, so raising it only makes all the sense in the world. I almost wish they had put in a delay mechanism in case the economy is still in bad shape in 2 years, but hopefully that won’t be the case.

Fiscally, I think it is a drop in the bucket, and the short term economic impact is definitely not great. That is why there is such a strong knee-jerk negative reaction among the public. They either run or know people who run small businesses that will get hurt, but more importantly it’s one of the few policies that stares average people in the face every day and is easy to understand. Everything you pay for will get more expensive.

But at the same time it’s vital to get the house in order so to speak, or else Japan really is in for a hard landing. The social programs that Japan has are great and they need to be maintained. So they need to be funded in a way that’s not too onerous, and this seems like as good a way as any to me.

I have basically come to the conclusion that inflation is unlikely in Japan over the long term because there isn’t a fundamental basis for it. People are getting older fast and are just going to spend less. And productivity gains aren’t going to be fast enough to make up for that (economics isn’t my strong suit… but isn’t it the case that inflation is at least supposed to track economic cycles?) Japan isn’t going to necessarily have another growth boom, but what it can do is enjoy a comfortable and proud status as a rich nation. That is, they should be able to if people in their prime now can actually feel some security and expect a reasonable retirement not too different from what their parents had.

In terms of the political situation, there are a lot of people saying that Ozawa “won” but I don’t really see it that way. He didn’t stop Noda from doing what he wanted to do – there has effectively been a Grand Coalition in place since Noda came to power (note how close to unanimous the jail-for-download law was, or the postal reform bill, or take your pick) and for all the blustering among the parties they are pretty much united on a lot of policy measures because they are a) consensus among the Serious People muckimucks like the finance ministry and media opinion makers, and b) the subject of gaiatsu (I believe the IMF has been dogging Japan to raise the consumption tax).

And although Ozawa technically has the power to basically an early election through defecting, he is too afraid to do it because he knows that his clique is even more exposed to getting voted out than the others because it contains so many first-termers. It seems pretty shrewd for Noda to NOT punish the defectors in that case because it prevents the election from happening and lets the de facto grand coalition continue with him running the show.

If there is an election the DPJ will lose, the LDP will win (though maybe not get an outright lower house majority), Komeito will maintain, and Hashimoto’s party might make a serious splash, though Hashimoto himself has said he won’t run. So in that context I think all the established parties, especially the DPJ, have an incentive to delay an election as long as possible. Once Hashimoto has his foot in the door of national politics life won’t be the same. Every little thing will be a fight that can’t be worked out by getting drunk together at a ryotei.

Make no mistake, though, this is a big deal. This type of potential split in the DPJ was months in the making, maybe even years because Kan might have pushed for the tax hike had there been no earthquake (remember how he for whatever reason ran on that issue in the Upper House elections?).

And there is always the need to point out that this agenda of raising the tax was pushed by the finance ministry. Politicians in general are empty shells with voting power, and they need to get pushed in a certain direction by the people who they think will help them keep or increase that power. This time it was the ministry of finance because it is a permanent bureaucracy that has a political agenda that’s informed by its mission as the steward of the Japanese government’s finances.

That isn’t necessarily a bad thing because if there is one thing that the DPJ coming to power has taught me is that it’s dangerous to allow people with zero expertise being responsible for governing convince themselves that they know what’s best for the country. It feels like all they are good for is posturing and fundraising. The DPJ made the critical mistake of making enemies of the bureaucrats instead of cultivating them and influencing them in the subtle, glad-handing way the LDP mastered. Or at least they could have brought in people with talent and real ideas.

Read up on the upcoming changes to immigration policy – pretty much all positive!

Happy foreigners love the new system!

Starting next month (July 9), the immigration authorities are going to implement a series of changes to the rules for foreigners in the country. The biggest is probably replacing the foreigner registration card (gaikokujin torokusho) with a residency card (在留カード). It’s more or less the same, but it will now be administered directly by immigration, not the local authorities.

There are a lot of other changes as well, so it would probably be a good idea to sit down for maybe an hour and familiarize yourself with them. The government’s handy website can be found here for Japanese and here for English.

All in all, these represent some real benefits for expats, so I think the authorities deserve a pat on the back on this one. So far my personal experience with immigration has been very positive, and it looks like my warm feelings will only continue. Here are some of the new rules that caught my eye:

  • The general term for a medium-term visa will be extended from 3 to 5 years.

  • A “deemed” re-entry system will allow anyone on medium-term or permanent resident visa to leave the country and return without a special application or fee, provided they come back within one year. Longer periods out of the country will still follow the old system of filing an application and paying a fee for a temporary re-entry permit.

  • Changes of address will still go through local government offices the same as Japanese people, but changes to marital and employment status, etc. will need to be reported to immigration. That could be a pain in the butt, but apparently they plan to allow you to report changes by mail, which would be a huge improvement.

  • The new card won’t include personal information such as employer or school name on the card. Instead that information will be stored in an on-board chip.

  • Violations of the new system are now subject to penalties and fines!

  • People whose old gaijin cards are still valid in July don’t need to get the new cards right away. You will have up to three years to get the new one.

  • Foreigners will be added to the juminhyo system instead of being part of a separate registry. I am not sure exactly why this is a big deal, but presumably not maintaining a totally separate database will save the government some money.

UPDATE: Another big benefit is that for newcomers, residency cards will be issued upon entry, so you will no longer need to show up at city hall to register and wait for the card to be issued. This along with some other services is only available at major airports. You are still required to go to the local office to “notify” them of your presence… But if I’m not mistaken this is functionally not that different from what Japanese people have to do when they move.

Did I miss anything big? Please let me know in the comments, and be sure to read up on the new system!

Expatriating acts

With all the kerfuffle over how Eduardo Saverin, one of the wealthy founders of Facebook, has abandoned his US citizenship on the eve of the IPO in an apparent bid to avoid taxes, on the heels of Michelle Bachman abandoning her Swiss citizenship, we have seen more discussion of dual citizenship in the past week than I can recall ever appearing in the American media.

I have no particular thoughts on the subject now, but I did learn one thing of significance from this “Room for Debate” feature in the NYT:

Active dual citizenship, on the other hand, means acknowledging or applying such a status by, for instance, voting in a foreign election or registering with the foreign government as a citizen. Such actions used to be called “expatriating acts” — engaging in them meant you renounced your U.S. citizenship. The Supreme Court in the 1960s ruled that such acts can no longer automatically lead to the loss of citizenship. But they can still be prohibited by law, as Chief Justice Earl Warren himself wrote.

I had not realized that the Supreme Court has ruled that there are no longer any automatic expatriating acts. That is, that to lose your US citizenship, you must now either formally renounce it, and have that renunciation accepted, or have a court rule that your citizenship was never valid in the first place, for example due to a fraudulent application.

For the curious, here is the actual form that one actually fills out when voluntarily renouncing US citizenship. While I am not qualified to give legal advice in any capacity, as a practical matter I strongly advise against completing this form in a flight of idle whimsy and leaving it around where a prankster might find it.

Incidentally, Saverin was born in Brazil, so presumably retains his Brazilian citizenship. My understanding is that if he was only a citizen of the US, they would reject his application to renounce his citizenship, as it is widely considered illegal for an individual to voluntarily become stateless.