Local Governments’ Tax Revenues: Devise Ways to Correct Imbalances in Tax Sources

Editorial

15:41 JST, November 28, 2025

It is inevitable that there are differences to a certain extent in administrative services, such as childcare support and medical care, due to differences in tax revenues, depending on which municipality one lives in.

However, a vicious cycle continues: Excessive concentration in Tokyo shows no sign of stopping, tax revenues flow only to Tokyo and local areas get exhausted. To maintain the vitality of the nation as a whole, it is necessary to correct the imbalance in tax sources.

An expert panel of the Internal Affairs and Communications Ministry has compiled a report on local taxation. It highlighted the widening gap between Tokyo, which enjoys high tax revenues, and regional areas that struggle with tax revenue shortfalls. It urged the central government to take measures to deal with the issue.

Tokyo’s share of the total local tax revenues for fiscal 2023 reached 17.6%. By tax type, 22.5% of the local corporate tax levied on businesses and 25.1% of the fixed asset tax on land went to Tokyo.

The local corporate tax is designed in such a manner that even if a company’s branches are located in regional areas, the majority of the tax goes to the municipality where its headquarters is located. The central government distributes a portion of that tax revenue to local governments with lower tax revenues, but the fixed asset tax lacks such an adjustment mechanism.

The concentration of tax revenues in Tokyo can be described as a structural problem.

According to the internal affairs ministry, Tokyo’s per capita local tax revenue is 2.3 times greater than that of Nagasaki Prefecture, which has the lowest. When implementing its own measures, the Tokyo metropolitan government reportedly can allocate a budget of about ¥280,000 per resident annually. However, other prefectural governments average only about ¥80,000 for that purpose.

Indeed, the level of administrative services provided by the Tokyo government is remarkable. For monthly childcare support, it provides ¥5,000 per child aged 18 or younger. This summer, it made basic water bills free for four months.

Tax allocations to local governments exist to correct the uneven distribution of tax sources among local governments. However, relying solely on this measure makes it difficult for some local governments to maintain their administrative services. It will be necessary to review the calculation method and implement generous measures for smaller municipalities.

Local governments are also requesting that taxes on bank deposit interest be adjusted among prefectural governments.

Taxes on bank deposit interest are part of the resident tax, which are paid by financial institutions not to the municipality where the bank account holder resides, but to the prefecture where the financial institution’s branch responsible for the account is located.

In recent years, internet banks with no outlets in regional areas and only a head office in Tokyo have seen growing business. For such banks, the taxes on bank deposit interest are paid only to Tokyo. In fiscal 2024, Tokyo accounted for over 40%, or about ¥16 billion, out of a total of about ¥39.2 billion of this tax revenue.

It is vital to reconsider what the tax system should be like to adapt to changing times.

(From The Yomiuri Shimbun, Nov. 28, 2025)