[# start of Appendix D Section D ]
D. Internal Administration
1. Basic Structure
The basic structure of the tax administration has been greatly improved, as a result of the recent formation of the Tax Administration Agency. This Agency, operating at the national level, is responsible under the Finance Minister for the overall administration of the tax laws. Successful administration depends in large measures upon the degree of ability, energy, initiative and imagination which the officials of this Agency bring to bear on their tasks.
The Regional Bureaus, directly responsible to the Agency, have both supervisory and operational roles. On the one hand, they bear responsibility for supervising the activities of the Tax Offices in their Regions. On the other, they must investigate and decide the cases involving the larger taxpayers and also hear appeals from the Tax Offices. This latter operational activity will grow in significance in the next few years. To meet this and other new tasks further increases in the number and staff of these Bureaus should be carefully considered.
The Tax Offices are at the forefront of tax activity. Since these are the only tax agencies with which most taxpayers will have any contact, the success of tax administration will be judged by the people largely in terms of their experience with these Offices. It is essential, therefore, that the Tax Office be fair, efficient, and diligent in their relationships with taxpayers.
2. Calibre of Tax Officials
A sound tax structure, supported by proper administrative procedure, will nevertheless be a complete failure unless administered by officials of ability and integrity. The success of the income tax rests on the calibre of the Government officials to whom its administration is entrusted.
a. Selection and Training
Every possible effort should be made to secure competent personnel. Once obtained, such personnel should be properly trained. The Training Institutes, both at the higher and lower levels, are of vital importance in this regard. Their work should be encouraged and strengthened. Competent instructors should be assigned at salary scales commensurate with those applicable to officials in other parts of the tax system. Procedures should be devised to ensure that the teaching represents the up-to-date activities of the Tax Offices. Sufficient books and other materials should be made available to the students. Adequate quarters should be provided. On-the-job training should also be vigorously pushed at all times.
b. Promotion
Promotion should be based on merit alone. The tax service should offer a career in which ability is the decisive factor. Key jobs should be the reward for competent service and demonstrated ability; their allocation should not be restricted to those with a particular educational or social background.
C. Payment and Welfare
Salary scales should be sufficiently high to attract and retain competent personnel. Attention should be paid to the welfare of employees, as regards medical care, housing, etc. Reasons for resignation should be examined and efforts made to keep the turnover of personnel to a reasonable figure.
d. Corruption and Bribery
Determined, vigorous and constant efforts must be directed toward elimination of bribery and corruption from the tax service. It is recognized that special factors are now present which aggravate the problem: the youthfulness, inexperience and low salaries of a majority of the tax officials, high rates of tax, and the prevalence of black market activities. The result has been that bribes and favors firmly and insistently offered encounter weakening resistance. Nevertheless, this situation cannot be tolerated. Part of the solution is better training and payment of personnel. Another part is the development of a high degree of morale among tax officials. But human nature being what it is, more is demanded. The recent decision to create a special trusted group of personnel inspectors responsible to the Tax Administration Agency represents a necessary and desirable step. This group must be adequate in number and ability to check on the honesty of tax officials and to ferret out corruption. Taxpayers and tax officials who indulge in bribery activities must be vigorously prosecuted.
e. Conduct of Tax Officials
A tax official is a representative of the people, not an alien authority. The people have entrusted him with the job of collecting funds to pay for certain essential functions of their Government. Thus, their existence as a nation depends on proper performance of their job. They expect him to execute that trust with firmness. But firmness does not necessitate arrogance or incivility. It can be accompanied by kindness and patience and still retain its essential quality. Tax officials should so conduct their activities as to give no proper ground for complaint, so frequently heard at present, about their high-handed attitude toward taxpayers.
f. Increase in Personnel
A basic need underlying all of the above recommendations respecting personnel and all of the suggested administrative improvements is an increase in the number of tax personnel. It is "sen wise and yen foolish" to deny the employment of tax personnel in adequate numbers. The funds spent for enforcement of the tax laws are amply rewarded by the greater increase in revenue collections. The funds must be wisely spent and the additional personnel properly selected and properly assigned. But if these cautions are observed, the end result is bound to be favorable to the Government even if viewed solely as matter of funds spent and funds received. In addition, much is gained in respect for a Government and its laws if the tax measures are properly enforced.
3. Operating Instructions
The Tax Administration Agency should reexamine the instructions issued to Regional Bureaus and Tax Offices, bring them up to date, and adequately organize and index them so that they may be readily followed and utilized. Such internal administrative instructions should be separated from interpretations of a substantive nature. After the administrative procedure is revised, the Agency should make available to the public a detailed description of the entire administrative process. This description should contain a statement of the functions allocated to the Bureaus and Offices and to the Divisions and Sections therein, the various steps in the administrative process, the rules governing protests and appeals, etc. As many of the internal instructions as may properly be made public should be included. Such description of the administrative process should continually be revised and kept current.
4. Administrative Interpretation of Tax Laws
Improved administration of the tax laws, based on their objective application, will inevitably give rise to numerous questions of interpretation of the substantive provisions of the tax laws. The Tax Administration Agency should develop a qualified group of officials to be entrusted with this part of the administrative process. Such interpretations should, to the fullest extent possible, be made available to the public as well as to the Bureaus and Tax Offices. They should be designated by a particular title, such as "Interpretations" or "Rulings", and be adequately indexed and codified. This formal interpretative procedure at the national level will greatly assist in bringing about geographical uniformity in the application of the laws. Qualified officials should likewise be designated in the Regional Bureaus and in the Tax Offices to handle lesser questions of interpretation not calling for reference to the Agency.
5. Office Procedures
The office procedures, both in the Regional Bureaus and the Tax Offices, require complete overhauling and modernization. They are not geared to the tempo of a mass income tax. To a considerable extent the problem is one of lack of proper equipment. Tax Offices are usually housed in antiquated buildings, poorly lit and ill-adapted to efficient office routine. Accommodations to receive taxpayers and to discuss their problems are generally lacking. Adequate office equipment, such as filing cabinets, carbon paper, binders, etc. is for the most part non-existent. Transportation facilities are generally far below minimum needs. Record keeping is in almost a primitive stage, especially when compared with the demands of a modern tax system.
Another part of the problem is inefficient use of existing personnel. A thoroughgoing job analysis is necessary to determine the most efficient allocation of personnel. As improvements in one aspect of office routine reduce the number of personnel previously assigned to that operation the excess should be assigned to other aspects where additional personnel are required. Thus, improvements in record keeping will enable an increase to be made in the personnel available to the field force assigned to tax collection. This will permit the creation of a separate field division instead of the present system of having an employee work part time on office record-keeping and part time on filed work. Further, more reliance should be placed on key personnel and such personnel should in turn exercise greater responsibility. Every effort should be made to obtain the ablest officials for these key positions in the Bureaus and Tax Offices.
Another aspect is the needed development of office routines and procedures capable of efficiently handling the mass of documents and detail inevitably associated with a modern income tax. Record-keeping must be made far more efficient. Standard form sizes should be developed, numerical controls instituted, different colors used to permit rapid form identification, and so on.
A start has been made toward the solution of these difficulties. New buildings have been obtained in some areas. There is a recognition of the effect upon official morale and taxpayer compliance of a well-built, efficiently run office. Record keeping and procedures are being questioned and improved. A group of supervisors, operating regionally but responsible to national direction, is being instituted to examine and improve office operation.
A group of Tax Offices, designated as Model or "E" offices, have been selected for intensive attention directed toward improvement of all aspects of Tax Office operations. The major part of this work concerns relationships with the taxpayer. Thus, the program to be followed by these offices involves educational activities to promote taxpayer compliance; contact with the taxpayer prior to reassessment plus actual investigation in as many cases as possible; assistance to the taxpayer as respects record keeping -- all with the overall aim of objective tax assessment under efficient operating conditions. Such a model program should be vigorously pushed. Successful achievements should, through exchange visits of tax officials and other methods, be incorporated into the operating procedures of the other Tax Offices.
The task of modernization of office equipment and operation is of major magnitude. Constant and vigorous effort is vitally needed for its accomplishment. This effort should not be impeded by inadequate budgetary appropriations. Funds spent on such necessary improvements and modernization will be well spent. Such expenditures will be matched many times over by the increased revenue collections that will result from this modernization program.
E. Collateral Matters
1. Accounting
a. Importance of Accounting
Successful administration of a modern income tax demands a competent and independent accounting profession. One of the great problems facing Japan in its efforts to achieve such administration is the almost complete absence of that profession. The independent certified public accountant, skilled in the techniques of public accounting, in the sense of the American or the British standards for example, is almost non-existent. Further, accounting standards have suffered a severe deterioration, partly as a consequence of the war period and the lack of access to current developments and progress in other countries. It is thus absolutely vital that an independent accounting profession utilizing modern practices be developed in Japan.
b. Administration of CPA Law
The new law regulating the qualification of Certified Public Accountants is the main key to the solution of the difficulty. That law must be so administered that only genuinely qualified persons of high integrity will achieve the honor of practicing as Certified Public Accountants. The Finance Ministry, which is responsible for implementing the new law, can immeasurably lighten its task of tax administration if it so applies that law. The Review Council selected by the Finance Minister to execute the law must consist of men of high ability and unquestioned integrity. We urge that the status of this Council be changed to an independent commission under the general jurisdiction of the Ministry of Finance. This change will not require any new personnel, but it will improve considerably the standing of the Council. Examinations must be sufficient to vigorously test an applicant's knowledge. Former practice as a public accountant is not enough to entitle a person to become a Certified Public Accountant.
In this regard, a recent amendment to the original law causes grave concern as to the successful accomplishment of these objectives. The amendment of June 1949 permits public accountants of 15 years standing to qualify by taking a panel examination. It is very difficult to keep panel examinations rigidly objective and free from personal factors. There would appear to be no good reason for exempting such accountants from the requirement of a written objective examination. The amendment should, therefore, be repealed. Such public accountants should instead be required to take the Special Examination now afforded to those currently practicing in this field. In view of the provision that prior experience may be considered in the overall judgment respecting a candidate's qualifications, the examiners for such Special Examination must be persons of competence and complete impartiality.
Every future effort to weaken the objective testing required under the original law should be vigorously resisted. Political considerations should not be yielded to nor compromises permitted which in any way obstruct the important task of building a reliable accounting profession.
The dire need for accountants should not be satisfied by a lowering of standards. The long-run solution of gradually increasing the number of accountants as they properly qualify is distinctly preferable to the short-run solution of quickly supplying a large number of less qualified persons. For the future the title of Certified Public Accountant must be scrupulously reserved for those individuals whose accounting ability and integrity can be relied on by the public, tax officials, foreign investors and other interested groups. For reliance on those bearing the title of Certified Public Accountant is the base upon which must rest the accounting structure necessary to modern tax administration. If that base is inadequate, the structure falls.
c. Improvement of Accounting Standards and Practices
(1) Committee for the Improvement of Accounting Standards - An organized effort must be made to improve Japanese accounting practices. A start in this direction has been made by the formation of the Committee for the Improvement of Accounting Standards. This Committee should continue to function as an independent advisory group, upon which would be represented those interests, Government and private, that are concerned with the subject of accounting standards. In particular, the Tax Administration Agency should be represented on that Committee. The recommendations of the Committee should be advisory only, their strength lying in the calibre of its personnel and the quality of its work.
(2) Securities Exchange Commission - The Securities Exchange Commission should also take a leading role in improving accounting standards. With its powers to prescribe the form of various financial statements it is in an excellent position to contribute significantly to the development of accounting practices. It should proceed to issue accounting standards as regulations. Experience elsewhere has proven that such prescription of accounting standards has greatly improved accounting practices. Such SEC issuance of regulations respecting accounting standards would probably constitute the most effective single step that could e taken to achieve the needed improvement in Japan. As stated elsewhere, this agency will also be accumulating, as part of its control over the Stock Exchanges and the issuance of securities, a large amount of data in the form of annual corporation reports and other financial statements. These will be of great assistance to the tax officials. For the above reasons, close liaison should be maintained between the Securities Exchange Commission and the tax officials. The Finance Ministry and the Attorney General's office should cooperate to the fullest extent in assisting the Securities Exchange Commission to develop as an effective agency. Such assistance must extend to such matters as budget, personnel, equipment, prompt prosecution of violations of the SEC law and regulations, etc.
d. Increased use of Independent Certified Public Accountants
The tax law should provide that all corporation and individual business returns over a certain income should be accompanied by a balance sheet, profit and loss statement, and other necessary data certified by an independent Certified Public Accountant. In addition, certain privileges, such as the carry forward or carry back of losses, that lend themselves to abuse if not carefully supervised, may be restricted to taxpayers who have their books audited and possibly their returns certified by a Certified Public Accountant. The only question here is one of timing -- when will there be an adequate number of CPA's to make such a requirement possible.
The Securities Exchange Commission has the authority to require such certification in the cases of corporations issuing securities or trading on the exchange. It is expected that it will exercise such authority at the earliest possible moment. The tax officials should similarly, in close cooperation with the SEC, impose this requirement for tax purposes for these corporations as soon as the SEC acts. Thereafter, this requirement should be extended for tax purposes to additional corporations and individuals as rapidly as the number of independent CPA's makes such extension feasible. Prior to such mandatory requirement, and even thereafter as to those taxpayers to whom the requirement is not extended, steps should be taken through education by business and accounting groups to encourage the voluntary use of independent Certified Public Accountants.
Such reliance on Certified Public Accountants will require a vary marked increase in the present technique of public accounting, such as auditing and the preparation of public statements. The accounting profession must use every resource possible to develop its competence in this area.
e. University and Other Courses in Accounting
The Universities and other institutions giving accounting courses should examine their curriculae and the content of such course to insure that the best training possible is afforded to students. Every effort should be made to keep abreast of modern practices, both from a theoretical and a practical standpoint.
f. Accountants in the Tax Administration Agency
The Tax Administration Agency should develop a group of full-time highly skilled accountants. These accountants would advise on permissible accounting procedures for tax purposes, participate in the administrative interpretation of the tax laws when accounting problems are involved, confer with business groups and accounting associations as to the development and improvement of tax accounting, assist investigators and inspectors in their work, and perform other related duties.
g. Use of Foreign Materials
An effort should be made to secure as much information as possible with respect to developments in the United States and elsewhere respecting accounting practices. It would be advisable for several professors of accounting and practicing accountants from countries with more highly developed accounting practices to visit Japan to survey the accounting courses now being given in the schools and to advise on accounting standards and practices with the schools, the Committee for Improvement of Accounting Standards, the Securities Exchange Commission and other interested groups. It would also be highly desirable for a group of Japanese accountants, recognized as outstanding in their field, to visit other countries to become acquainted thereby with the techniques and practices of modern public accounting.
h. GHQ Supervision
The task of implementing these recommendations respecting accounting and of assisting in building a qualified accounting profession should be definitely assigned to a particular GHQ division. It is not an aspect of general government or civil service operation, but a highly significant and specialized concern.
2. The Keeping of Books and Records
a. Present Inadequate Record-Keeping
It is axiomatic that proper taxpayer compliance under a self-assessment system is possible only if the taxpayer keeps accurate books and records whereby he may ascertain his income. Present day record-keeping in Japan is in a deplorable state. Books and records do not exist at all for many business concerns. They exist in super abundance for other concerns, and only the taxpayer knows which is the reality and which the mask. The result is a vicious circle. Tax officials claim they must resort to office assessments based on standards and other averages because of the absence of accurate and reliable books. Taxpayers state that there is no point to keeping accurate books, even assuming that they were competent to do so, because the tax officials refuse to credit the books. This circle must be broken. Every effort and resources must be brought to bear on encouraging and assisting taxpayers to keep books, to keep them accurately, and to use the accurate books for tax purposes. Every effort and resource must likewise be brought to bear on tax officials to respect the information disclosed by such accurate books.
b. Large Companies
The problem should not be too difficult as respects the large companies. They generally have staffs adequate to the keeping of proper books and accounts. The recommendations previously made with respect to accounting standards and independent audits should produce accuracy and overall standardization. Proper investigation by a trained staff of investigators should materially assist in keeping recalcitrants in line.
c. Smaller Concerns
(1) Educational Aspects - The formidable problem is that of improving the accounting practices of smaller business concerns of all kinds. The problem is also present as to farmers, but to a considerably lesser extent in view of the plan suggested for farm income. It is in large part an educational problem. All organizations touching the activities of such concerns and individuals should stress the importance of the accurate keeping of books and records. The cooperation of chambers of commerce, trade associations and other business groups, farmers' cooperatives, and the like in this program should be enlisted. Secondary schools should stress courses in bookkeeping. Institutions participating in adult educations should likewise urge such courses.
(2) Preparation of Model Forms for Record Keeping - For such educational activity to be effective, it is necessary to furnish these concerns and individuals with bookkeeping forms suitable to their business and educational level. Steps in this direction have been taken in various places and the results are encouraging. The Committee for the Improvement of Accounting Standards can be helpful here, as can the Universities and the business and farm organizations mentioned above. The Finance Ministry should, through the Tax Administration Agency, Regional Bureaus and Tax Offices, fully cooperate in such endeavors. Other interested Government agencies, as the Ministry of Agriculture and Forestry, should also participate in this work. The accounting forms should be kept simple. They should be varied, when necessary, for different businesses and different conditions of farming. The forms should also be such as to permit ready audit and investigation by the tax officials.
(3) Inducements to Proper Record Keeping - Tax Office Attitude - Education and the furnishing of tools will probably not be enough. Rewards must be sought which will positively encourage the taxpayer to use these tools. One possibility is to provide special administrative treatment to a taxpayer who keeps books and records. Thus, a taxpayer desiring such special treatment would register with the Tax Office his willingness to keep accurate books and records. Such books would be kept on a form approved by the Tax Office; it would be one of the various forms developed as indicated above. A taxpayer so keeping books and records would be permitted to file his return on a different colored form so as to differentiate him from other taxpayers. The Tax Office would assure such taxpayer that if he keeps such books and records and files his tax return on the special form he will not be subject to reassessment until after an actual field investigation is made of his income for the year. And if a reassessment is made, the specific reasons therefor must be given.
A taxpayer not keeping such books and records would, on the other hand, not be guaranteed an investigation before reassessment but would be subject to reassessment by the use of standards. Moreover, such latter taxpayer would not be permitted to take an appeal to the Regional Bureau.
As respects the taxpayer registering his intention to keep books, the Tax Office could in some cases make a preliminary inspection during the year to check the bookkeeping and assist the taxpayer if he is acting in good faith or deny the privilege of the special return if the taxpayer fails to keep the books up to the necessary standards. Of course, any investigation of the return need not accept the books as final. But the investigation would have to be made before reassessment, and the books should be respected unless there are definite indications of inaccuracy. Penalties should be imposed for false keeping of books with intention to evade, and also for the use of the special return where there is no attempt in good faith to keep the prescribed books. If the number of taxpayers faithfully keeping such books should prove too large to permit investigations of all, standards may be used to determine which returns would appear to be most in need of investigation. But the returns so selected on the basis of standards would have to be actually investigated before reassessment would occur.
The above system would thus offer an inducement to accurate bookkeeping. Other inducements should be considered. Thus the standards governing reassessment should be kept sufficiently high so that lack of record keeping does not mean a lower tax but, if anything, the possibility of a higher tax. Depreciation deductions and loss carry overs may be denied to those who fail to keep books. The problem is so large in magnitude and its solution so important to proper tax administration that every effort must be brought to bear on achieving the required degree of record keeping.
3. The Place of Trade Associations in Tax Administration -
a. Present Role - Collective Tax Bargaining.
The trade association is deeply embedded in the fabric of the Japanese business world. This prevalence and the serious situation faced by the tax officials have combined to make the trade association an integral part of tax administration. The consequence has been a grave distortion of the administrative process. The participation of the trade association in tax activities must be ended if proper tax administration is to be achieved.
At present trade associations often enter into a system of "collective bargaining" with the Tax Offices by which an overall tax figure is arrived at for the business activity represented by the association. Such figure is likely to be a compromise between the initial figures suggested by both parties to the bargain. The association then allocates such tax figures among its members. The method of allocation differs with the manner in which the association is operated. In some the "boss" or a small group decides the entire matter, in others the members play a more active role. The degree of fairness in the allocation thus varies from association to association. The members then fill out a tax return so prepared as to reach the tax amount thus allocated. The members may thereafter file and pay their taxes separately or may even pay their tax collectively through the association.
Members often need not necessarily abide by such association operation. As a consequence, those members who believe that they can do better by separate negotiation with the Tax Offices act individually. Often these are members who have relatives, acquaintances, or other contacts in the Tax Offices. In other cases they are dissatisfied with the method of allocation and hence act separately.
This method of tax assessment and payment lends itself all too readily to racketeering, boss-domination, favoritism and diversion of funds. Amounts are often collected in the guise of payments to be made to tax offices only to be diverted to other channels. Furthermore, this system of tax assessment through collective trade association bargaining is obviously incompatible with objective tax administration.
b. End of Trade Association Participation in Tax Administration
To eliminate these evils, trade associations should not be permitted to negotiate or deal collectively with the Tax Offices as to the taxes of the entire membership or any individual member thereof. They should not be allowed to file returns or pay taxes on behalf of their members; nor even allocate taxes among their members. They should not be expected to submit information to the Tax Offices which ranks their members for tax purposes or results in tax allocations among their members.
In short, the participation of the trade association in the assessment of taxes and the administrative process should be completely ended. They may act as trade associations - not tax agencies. The assessment of taxes is a function of Government and not of private groups. The evils of racketeering, bossism, favoritism, and discrimination are bound to occur if that function falls into private hands. The trade association may legitimately appear before the Diet to represent its members respecting tax legislation, or it may appear before the Finance Ministry in regard to overall administrative procedures. But it cannot in any manner participate in direct tax administration.
The law should be amended to prohibit such trade association activity and the Finance Ministry be given authority to enforce such prohibition. It is the duty of tax officials to see that trade associations do not participate in tax administration.
Such a termination of trade association participation in tax administration will increase the workload falling on the Tax Offices. Additional personnel will be needed to insure proper tax collection from trade association members. But such necessary funds will be devoted to the maintenance of a function of Government that must remain in the hands of Government. Budgetary arguments can never be convincing arguments for the surrender of that function to private groups.
4. Taxpayer Representation
The representation of taxpayers on a professional basis before tax officials is handled at present by Tax Practitioners. These practitioners are licensed by the Finance Ministry and their activities and fees supervised by that agency. The present number of Tax Practitioners is about 3200.
While some lawyers to a minor extent and public accountants to a greater extent are licensed as Tax Practitioners, the bulk of the work is done by former tax officials. The present lack of objective ascertainment of net income and the consequent stress on bargaining between Tax Office and taxpayer nave in large part produced a skilled negotiator rather than a tax technician as the taxpayer's representative. In some cases, the term "negotiator" is a euphemism to cover "fixing", bribery and the like.
Proper tax administration is more readily forthcoming if there is an active, informed professional group ably representing the taxpayer and assisting in holding the tax officials to action in accordance with law, rather than merely bargaining for favors or leniency. Also, proper tax administration in turn requires that the taxpayers have the assistance of such a professional group if they are to meet the tax official at his informed level. Consequently, it is necessary that the standards of the Tax Practitioner class must be considerably improved.
In large measure the responsibility for such improvement rests on the Finance Ministry. The examinations for admission to the status of Tax Practitioner should require a more thorough knowledge of tax laws and of tax and accounting practices and methods. The supervision of their activities should be tightened. A special group of inspectors in the Tax Administration Agency, perhaps the group used to check tax personnel, should be utilized to check the honesty of the Tax Practioners. Complaints respecting the latter's conduct should be promptly and fully investigated. Tax Practioners should be given a small official card which would readily identify them when they appear before tax officials. The latter in turn should request such identification of any person representing taxpayers professionally.
It would be desirable if lawyers and Certified Public Accountants would engage to a considerably greater extent in representation of the taxpayer before tax officials. Objective tax assessment under detailed and specific provisions of the law requires trained intelligence. Unless the services of these professional groups are available on an adequate scale, the taxpayer will be unable to properly hold his ground against inevitable errors of tax officials.
At present a taxpayer may be represented by a friend or other individual if he so desires. It is only when a person engages in the business of representation that he must be licensed as a Tax Practioner. This ability to assist a taxpayer on an individual basis in a particular case should be continued. Otherwise, protests by taxpayers would be too costly in many case, especially in the light of the present status of tax administration. In the long run, however, as tax administration improves and becomes more technical and if the competence and integrity of the Tax Practioners as a class become assured, it would probably be desirable to restrict taxpayer representation to that class. At least, this would be so as respects the handling of appeals on behalf of the taxpayer.
Taxpayer representation before the various Bureaus and Offices is essentially a personalized matter. Cases should be discussed and considered on an individual basis. A Tax Practioner or other representative should, normally, confine a particular appearance to discussion of a particular case. Group handling of appeals and protests is an improper procedure. Tax cases are not to be discussed and decided en masse. It is proper to consider overall administrative procedures from the aspect of their effect on a class or classes of taxpayers. But group consideration of tax liabilities and tax controversies should not be permitted by the tax officials or engaged in by taxpayer representatives.
5. Tax Materials
a. Official Materials
(1) Tax Laws - The income tax laws are largely codified in official publications. Annual revision of these codifications should be continued. Adequate indices should be provided. Care should be taken to ensure the completeness of the coverage of these codifications.
(2) Ordinances and Regulations - The ordinances and regulations pertaining to the income tax laws likewise are codified in official publications. They also should be constantly revised, adequately indexed and kept comprehensive.
(3) Interpretations and Rulings - Interpretations and rulings of the Tax Administration Agency are not at present available to the public. They are combined today with the instructions issued to Regional Bureaus and Tax Offices. Those interpretations and rulings should be separated from the instructions, adequately indexed and made available to the public. They should be published regularly in clearly identifiable form and should be kept current.
(4) Judicial Decisions - Arrangements should be made, either by the Tax Administration Agency or private publishers, to make available in convenient form the judicial decisions pertaining particularly to tax matters.
(5) Administrative Procedure - The Tax Administration Agency should publish a complete description of the administrative procedure under the income tax: the functions of the separate parts of the administrative machinery, the rules governing the various procedural steps, and all related matters.
(6) Popular Explanations - The materials described above are largely directed to the professional part of the public, such as lawyers, accountants, tax practioners, and the like. The Tax Administration Agency should also publish explanations of the tax laws, in a simple readable style, which can be readily understood by the mass of taxpayers. These explanations should relate not only to the substantive tax provisions but also to the procedural steps in the administrative process. The explanations should be directed toward the various classes of taxpayers, such as "Taxation of the Farmer", "Taxation of the Employee", "Taxation of the Small Business Concern", etc. They should be prepared with the cooperation of persons trained in mass communication media.
(7) Statistical Material - The Tax Administration Agency should make regularly available complete statistical information regarding income tax matters. Such information should relate to numbers of taxpayers, returns filed, amount of tax collected, reassessments made, protests filed, dispositions of protests -- in fact, all the statistical information necessary to obtain an informed understanding as to the complete working of the administrative process.
b. Unofficial Materials
(1) Tax Literature - It is hoped that there will also be an increase in the amount of literature relating to technical tax matters as distinguished from the economic and fiscal aspects of taxation. Professional and technical journals of various kinds should make room for qualified articles on technical tax matters. Steps should be taken to ensure the adequate textbooks on the substantive provisions of the tax laws and on the legal and accounting aspects of taxation are made available.
(2) Tax Discussions - The various professions interested in tax matters should promote informed discussions in the tax field. Bar Associations, Accounting Organizations, University organizations, and the like should be encouraged to conduct forums for their members and others interested in tax matters. Such activities should be on a different level and largely wholly apart from the popularized discussions necessary to inform the great mass of taxpayers about tax matters. They should involve a degree of technical competence that would be of material assistance to those having a professional interest in taxation. Of course, these organizations should also cooperate in providing popularized information and discussion for the average taxpayer.
(3) Course in Tax Law - The Law Departments of the Universities should institute courses in Tax Law as a distinct subject in itself. Attention should be directed toward the substantive and technical provisions of the tax laws and to the specialized aspects of tax administration.
(4) Foreign Literature and Information - Every effort should be made to to obtain as much foreign literature and information as is possible relating to the substantive and administrative aspects of taxation.
F. Conclusion
The basic task facing Japan under the income tax is that of building the entire machinery necessary to administer a modern income tax law applicable to many millions of taxpayers. The task is one of major magnitude. It represents a real challenge to the efforts, inventiveness, and persistence of the Japanese people. It is a task that cannot be accomplished overnight. Proper tax administration will not suddenly appear in a year or two. It can be obtained only gradually by the Japanese people or any other people. Whether it is to be obtained at all and the rate at which it will be achieved rest with the Japanese themselves. Moreover, the answer rests with the entire nation and not just with the tax officials alone or with this or that group of taxpayers.
A start has already been made by the Japanese. Procedures have been instituted and plans developed which offer considerable promise for the future. But steady improvement in all of the phases of tax procedure and collection must be undertaken simultaneously if adequate progress is to be made. Such constant effort on all fronts is a complex matter. There is every reason to believe, however, that income tax administration has seen its worst days. The outlook ahead is encouraging.
Ease of administration and simplicity of tax structure must be the guiding principles in the years immediately ahead. The tax machinery must be put in smooth running order as respects the great mass of the taxpayers. When this is accomplished attention can then be more sharply directed toward the finer points and details necessary to refine the equity of the tax. But even then the need for refinement must constantly be balanced by the dictates of administration and every change tested for practical workability.
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