How local tax allocations works

Local allocation tax (LAT) is set at a given percentage of the five major national taxes-income, corporate profits, alcohol,
consumption, and tobacco. The allocations are distributed to correct inequalities among public bodies in Japan's regions and to ensure that citizens receive a consistent standard of public services regardless of area of residence.

Basics: Total amount is legally linked directory to the amount of five national taxes (32% of income tax and liquor tax, 34% of corporate tax, 29.5% of consumption tax, 27.5% of tobacco tax). If that is not enough to make up for all imbalances, national government needs to increase the amount or take other measures under the law.

Calculation Formula

  • • 94% of the LAT is distributed to each local government as the following mechanism:
    [Standard Financial Needs(SFN)] - [Discounted Standard Revenues(DSR)]
  • • SFN is calculated to ensure the basic financial needs including some debt payment as diagram below indicates;
  • • DSR accounts for 75% of estimated standard tax revenues to give incentive to collect taxes as diagram below indicates;
Source: White Paper on Local Public Finance.2007-Illustrated-,MIC