OVERVIEW OF TOKYO

TOKYO'S FINANCIAL SYSTEM

Revenue

Metropolitan taxes provide 65.7% of the total metropolitan revenue, whereas local taxes accounted for just 35.5% (in fiscal 2001) of total revenue for other local public entities; metropolitan finances are characterized by a much larger share of local taxes than other local finances.

The TMG levies taxes on 17 items from among the local taxes shown in the figure on page 31. The largest proportion of the total metropolitan tax revenue is from the two corporation taxes (Corporate Business Tax and Corporate Residents Tax), which together account for approximately 34%. This is followed by the Fixed Assets Tax and the City Planning Tax at around 28% of total metropolitan tax revenue.

There are several items that are taxed directly by the TMG in the 23 special wards which in other prefectures would be taxed by a shi (city), not a prefectural authority. This is because the TMG carries out work such as fire-fighting and sewerage in the 23 special-ward area which would normally be carried out by the shi. TMG thus levies these taxes to allocate funds to pay for this work. 52% of tax revenues obtained from the Municipal Residents Tax paid by corporations, the Fixed Assets Tax, and the Special Land Ownership Tax is allocated to each of the special wards to provide them with their own financial resources.

Since October 1, 2002, the TMG has been levying an Accommodation Tax at a rate of between 100 and 200 yen on stays at hotels and ryokan (Japanese inns) within the city costing 10,000 yen or more per night. The Accommodation Tax is a local tax (non-statutory objective tax) introduced on its own instigation by the TMG to provide the financial resources required by policies intended to enhance the attractiveness of Tokyo as an international city and to promote tourism in the city.

The share of national treasury disbursements in the overall metropolitan revenue is smaller than in the case of other local governments. In fiscal 2001, national treasury disbursements accounted for 14.5% of the finances of other local governments, while it accounted for only 7.9% of the metropolitan finances in fiscal 2002.

The issue of Metropolitan bonds constitutes an important financial resource for developing public infrastructure and rebuilding cities. In order not to increase future financial burdens, the TMG is endeavoring to avoid any undue reliance upon the issuing of Metropolitan bonds, and to contain them to an appropriate degree. The local allocation tax measure is designed to compensate the local public entities for their shortages in revenue but the TMG has to date been the only prefectural entity never to have received any such allocations.

Revenue

Details of Revenue

Local Tax System

Note 1: Figures marked with an asterisk among those for municipal taxes refer to metropolitan tax in the 23 special wards. Municipal taxes applying to corporations are imposed as metropolitan residents' tax in the 23 special wards. indicates that the tax is not levied in Tokyo Metropolis. Note 2: Accommodation Tax is a "prefectural non-statutory objective tax," which is a special tax levied by the TMG. Note 3: The Special Land Ownership Tax has been suspended since fiscal 2003

Expenditure

The expenditure of the TMG has significant differences from the expenditure of other local authorities. First, as well as being responsible for the administration at a prefectural level, the TMG is also responsible for part of the administration in the 23 special-ward area that elsewhere would be carried out at the municipal level.

Another important difference is the 23 special-ward financial adjustment allocations, an expenditure item only found in Tokyo. The 23 special-ward financial adjustment system aims for equitable distribution of financial resources related to the metropolitan administration between the TMG and the 23 special wards, as well as redressing the financial imbalances between the 23 special wards, and ensuring that there is a certain uniform level of administration among the 23 special wards.

Expenditure

Details of Expenditure (according to purpose)

Details of Expenditure (according to type)

Problems of the Metropolitan Finances

The TMG's ordinary accounts for fiscal 2002 amounted to a total revenue of 6.2007 trillion yen and a total expenditure of 6.0148 trillion yen. The formal balance of revenue and expenditure showed a profit of 186 billion yen, but the actual balance taking into account resources carried forward to the next fiscal year showed a deficit of 52.4 billion yen. This was the fifth consecutive year for which a deficit was recorded. This critical situation is still continuing, and in addition the balance for metropolitan bonds stands at more than 7 trillion yen.

To deal with this situation, the TMG formulated the Second Fiscal Reconstruction Promotion Plan in October 2003. The program of financial structural reform set out in this plan has two main objectives. Firstly, the huge shortage of financial resources must be eliminated by the fiscal year 2006. Secondly, the ratio of revenue to expenditure must be reduced to at least 90% by fiscal year 2006. Based on these two objectives, the TMG will take the initiative in promoting independent financial reconstruction.

The TMG now aims to review all its systems and policies without exception while enhancing its internal operations to give it the flexibility and efficiency required. With this aim, as well as the aim of establishing regional autonomy, the whole metropolitan administration is implementing financial structural reform through measures such as the improvement of the taxation and fiscal system.