The impact of World War I on Japanese tax policy

The introduction and historical significance of a war profits tax in terms of total war

Abstract

Japan introduced a war profits tax（senji ritokuzei 戦時利得税）in 1918 as one form of income tax imposed on corporations and individuals during wartime. Although this tax has been only regarded to date as a way of punishing nouveau riche war profiteers, it's introduction in many belligerent and neutral countries during World War I played a role in keeping national unity strong. This article discusses the impact of that War on Japanese tax policy through an examination of the policy-making process leading to the introduction of the war profits tax.
In the major belligerent countries, like Britain, this tax was aimed at soothing public sentiment and maintaining cooperation with the war effort by making corporations and capitalists bear the major burden of its cost. It was not acceptable for the private sector to profit from the government's war expenditures, which were originally financed by public taxes, while members of the general populace were serving in the army or working for munitions manufacturers. This situation was clearly distinguished from the kind of inequality in wealth distribution that resulted from normal economic competition. The government introduced the war profits tax as a quid pro quo for the mobilization of the laboring classes, which limited workers rights.
In contrast, Japan's mass media advocated this tax in terms of the high taxable capacity of windfall income, as a necessary social policy geared towards wealth inequality. At the same time, similar logic which worked in the UK also appeared; and some intellectuals came to recognize the tax as a social policy to strengthen the general populace, and thus win a total war. The experiences of the major belligerents in the conflict were frequently utilized to increase public support for the tax.
On the other hand, the Ministry of Finance was protective of industry and prepared to submit legislation setting a special reserve of excess war profits withholding 50. of net income. However, when the deployment of troops to Siberia to cope with possible German advancement toward East was taken up as a distinct possibility, the Ministry's lenient attitude towards capital hardened, as war profits tax legislation was introduced in 1918 at the 40th session of the Imperial Diet in order to raise revenue to cover such military expenses. The Finance Ministry now perceived that in the midst of the Great War, the war profits tax would be effective in combatting possible economic chaos accompanying the outbreak of total war.
The war profits tax continued to be levied after the War in various altered forms. The ongoing relationship in Japan between general mobilization policy and social policy as two sides of the same coin was first expressed in the form of the war profits tax of 1918, which demonstrates one important influence of World War I on Japan.