EDITORIAL: Ruling on double taxation

The Supreme Court on Tuesday struck a blow against the tax authorities by ruling in favor of a homemaker who had filed a lawsuit against being required to pay both income and inheritance taxes on an annuity insurance payout.

When her husband died, his life insurance policy left the woman in Nagasaki with the right to receive both a lump-sum payment and an annuity. An inheritance tax was imposed on the total benefit she was entitled to receive. But she was also told to pay income tax on the annuity paid. The woman argued this amounted to illegal double taxation.

The top court accepted the validity of the plaintiff's argument and nullified the tax office decision. Although the amount refunded to the plaintiff will be small, the court decision will have wide repercussions. With many taxpayers nationwide subject to double taxation, the ruling is certain to open the floodgates of similar moves for refunding.

The most basic function of government is to collect taxes from the people and redistribute the money according to its policies. If there are inequities and distortions in taxation, the government cannot win the trust of the public.

Public criticism and protest over tax issues have often served as a catalyst for progress in modern democracy. The government rightfully must reflect on unfair tax administration practices that do not meet common sense, such as the one exposed by this lawsuit.

Courts in recent years have become increasingly rigorous in ruling on the legality of taxation decisions. We welcome the fact that the judiciary is responding to public expectations by enhancing its function of checking the executive branch in the area of tax lawsuits.

That said, many issues remain to be addressed.

Disputing a taxation decision by the tax office is a costly, time-consuming process. A taxpayer must first file a complaint with the tax authorities for a ruling by the National Tax Tribunal before he or she can file a lawsuit. There are likely many taxpayers who have grudgingly complied with decisions by tax authorities that they consider unfair after weighing the cost of a lawsuit against the potential gain.

People should not have to silently put up with such shortcomings in the administrative and judicial systems. It is crucial to create an environment that enables taxpayers to make their cases more easily.

First off, we must increase the number of lawyers and tax accountants who have the expertise and skills to deal with tax complaints. Apparently, many Japanese lawyers are generally not up to handling tax litigation, with only a few being well-versed in this area.

To increase the ranks of experts who can help taxpayers protect their rights, we must start serious discussions on ways to expand cooperation between lawyers and tax accountants. We also need to look closely at the powers vested in these professions and their training programs.

The role of the National Tax Tribunal must also be reconsidered. The current system for tax complaints requires all cases to be heard and decided by the tribunal before being brought to court. While proponents say this system leads to quick resolution of tax disputes by ensuring that issues and arguments are made clear through tribunal hearings, opponents argue that it wastes a lot of time.

Steps must be taken to reform the system based on a comprehensive review from the viewpoint of taxpayer interest. One potentially productive step would be to recruit more outside experts as tribunal judges.

Currently, the tribunal panel is comprised mainly of national tax officials.

The tax code has become a complicated labyrinth as a result of various political imperatives. In addition, much is left to notices and instructions issued by the National Tax Agency to tax offices. The practice of double taxation disputed in the lawsuit is also based on such an inside notice. Opaque taxation rules like this erect huge obstacles to taxpayers fighting tax decisions.

We cannot help but wonder if the constitutional principle that no taxes should be imposed except by law has become a dead letter.

This is another important perspective for the badly needed review, and a possible overhaul, of this nation's tax system.

--The Asahi Shimbun, July 8