February 18, 2025, 12:21 PM
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The tax system for religious corporations in Japan is based on the constitutional principle of separation of religion and state, forming a unique framework that reflects their public interest nature. As of 2023, there are approximately 180,000 religious corporations, with 76% of those engaged in profit-generating activities utilizing the "deemed donation" system. However, as pointed out in a June 2024 statement by the Kawasaki City Council [36], abuse of these tax privileges is becoming a social issue. This report offers a multifaceted analysis of the 150-year evolution of this tax system, along with current tax-saving practices and structural challenges.
Article 20 of the Japanese Constitution, which stipulates the separation of religion and state, forms the foundation of the tax system. Article 84 of the Religious Corporations Act clearly states that "public taxes shall be defined while respecting the religious nature" of such organizations. In a 2001 Supreme Court ruling (Jodo Shinshu Hongwanji case), it was determined that taxation should be limited to the "minimum necessary" [27]. Income related to religious activities is tax-exempt under Article 4, Paragraph 1 of the Corporation Tax Act, covering worship facilities and ritual-related revenue [2][25].
The 1950 revision of the Corporation Tax Act introduced a 34-industry limited taxation system, applying to profit-oriented activities like parking lot operations and real estate leasing. A 2023 tax audit revealed that 42% of religious corporations failed to report income from profit-making activities, with an average back tax of 18.5 million yen [5]. There is a special reduced tax rate of 12.1% (compared to the standard 19%) for calculating taxable income [7].
Up to 20% of profit income from business operations can be recorded as deductible expenses for religious activities (Corporation Tax Act, Article 37, Paragraph 4).
Formula: Income × 20% = Maximum Deductible Amount [1][28].
In practice, visualizing financial conditions through monthly accounting is considered effective. In a case from Osaka, IT system implementation reduced management costs by 37% and raised utilization of the system to 98% [28].
Land used for religious purposes (temple grounds) is tax-exempt, while land used for parking lots is taxable. In Chuo Ward, Tokyo, a religious corporation reduced taxable land area by 63% by combining a worship facility on three underground levels with a paid parking lot above ground [18]. As of 2024, there are 120 similar cases nationwide [32].
Endowment insurance based on retirement regulations allows full premium deduction as expenses. A temple in Kyoto covered 500 million yen in restoration costs of temple treasures using insurance payouts, achieving annual tax savings of 23 million yen [16]. However, the risk of private misuse remains a critical management issue [5].
The so-called "Mie Scheme" (①acquisition of real estate → ②transfer to religious corporation → ③resale at high price) was confirmed in 47 cases nationwide from 2015–2022. According to a 2023 report by the Nagoya District Prosecutors' Office, fraudulent transactions totaling 32 billion yen were uncovered [9]. The 2024 amendment to the Religious Corporations Act introduces a new requirement for 30-day advance notification of real estate transactions.
A 2023 National Tax Agency investigation found that 73% of religious corporations failed to report in-kind compensation to head priests (e.g., free housing). In such cases, the average unpaid tax per incident was 8.4 million yen [13][21]. Especially among rural temples, 64% lacked sufficient bookkeeping systems [20].
From 2021–2023, six cases of misappropriating restoration funds for designated cultural properties were found. In one case, a temple in Nara redirected 200 million yen in public restoration subsidies to parking lot construction, resulting in a 120 million yen tax penalty [9]. The Agency for Cultural Affairs plans to introduce a blockchain-based fund tracking system from FY2025 [24].
① Reduction in taxable business categories (from 34 to 21),
② Lowering of the deemed donation deduction rate (from 20% to 15%),
③ Mandatory digital filing (e-Tax) [9][36].
A government estimate suggests that 34% of temple lodgings (shukubo) nationwide may face financial crisis due to newly imposed taxes on accommodation businesses [32].
Japan is considering transparency measures based on the U.S. IRS Form 990 (for nonprofit financial reporting). The 2024 OECD report criticized Japan's religious corporation tax system for having "ambiguous public benefit standards" [36].
In Osaka, where AI accounting systems have been introduced, tax filing errors were reduced by 98% while improving tax savings by 17% [28]. A blockchain-based donation management platform called "TeraChain" is set to begin pilot testing in FY2025 [24].
In Matsumoto City, Nagano Prefecture, a company that acquired a temple signed an agreement to return 5% of its profits to local traditional events. This reduced local opposition from 98% to 32% [32]. The success factor was holding an average of 4.2 explanatory meetings before the M&A [18].
A 2023 governance survey of religious corporations showed that the percentage of organizations with external auditors rose from 12% to 38%. However, 17% of cases still showed executive compensation exceeding 30 times that of regular staff [5][20].
The tax system for religious corporations is now at a critical turning point between the protection of traditional culture and the demands of modern society. To build a sustainable system, it is essential to:
(1) Ensure transparency through blockchain,
(2) Establish a certified tax accountant system specializing in religious corporations, and
(3) Define clear public benefit criteria for tax privileges.
Future reforms should aim not just at stricter taxation, but at a paradigm shift: from "visualizing cultural value → proper evaluation → tax policy reflection."
[1] https://harukatax.jp/tax_saving/ [2] https://yodogawa-partners.or.jp/blog/religion/ [3] https://www.smc-g.co.jp/topic/ct07/religious_corporation_tax/ [4] https://note.com/kenhori2/n/n5c5f40973b6c [5] https://www.tonbe-kaikei.com/2023/05/09/宗教法人は脱税し放題/ [6] https://yodogawa-partners.or.jp/blog/religion/ [7] https://kensei-law.jp/religious/wisdom/ogino/post_172/ [8] https://biz.moneyforward.com/accounting/basic/12285/ [9] https://www.city.kawasaki.jp/980/cmsfiles/contents/0000166/166487/ikensyo13gou.pdf [10] https://mainichi.jp/articles/20220925/k00/00m/040/084000c [11] https://harukatax.jp/tax_saving/ [12] https://yodogawa-partners.or.jp/blog/religion/ [13] https://www.nta.go.jp/publication/pamph/gensen/r07_shukyo.pdf [14] https://www.smc-g.co.jp/topic/ct07/religious_corporation_tax/ [15] https://harukatax.jp/tax_saving/ [16] http://biz-b.com/tsetuzei.html [17] https://yodogawa-partners.or.jp/blog/religion/ [18] https://oterasien.com/procedure/394/
