4.1. Preferential treatment for forest inheritance tax

#### 4.1.1. Changes in the background of preferential treatment for the forest inheritance tax

Several forest inheritance taxes have been reduced for forest land and standing trees. As a background, forests were necessary for daily life in the past, and forestry practices and maintenance were conducted mainly by the forest owner, who invested in the forest over the longterm, but with low profitability. However, this background has changed.

To create coniferous plantations, a large amount of labor was necessary to conduct planting and initial treatment, such as weeding. In the 1950s and 1960s, the peak period of planting, family labor within the forest owner's household and employees of forest owners' cooperatives had large roles in private forestry. The forests planted during that time are now about 50 years old, and require thinning and final cutting, but these activities are conducted by forestry companies or forest owners' cooperatives. Since most forest owners do not have the machinery necessary for such activities, it is difficult for families to conduct cutting activities. In the past, the relationship between forest land and agriculture was considered as a role of private forest. However, of all forest owners, 58% also owned farmland based on the 2015 Census of Agriculture and Forestry.<sup>20</sup> Meanwhile, based on the 2013 Housing and Land Statistics, 71% of forest owners also owned farmland [21]. Just after the end of World War II, most forest owners were probably farmers, and the percentage of non-farming forest owners has increased. In addition, in the field of farm management, the relationship to forest resources

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Figure 8. Area of plantation. Source: Forestry Agency, Division of Research [17], Forestry Agency [1, 18–20].

The spread of depopulation and number of non-resident forest owners is increasing throughout Japan. In the 2000 Census of Agriculture and Forestry, non-resident forest owners accounted for 24.6% of total forest owners. As the number of aged owners is increasing, inheritance appears to be increasing. In some cases, the inheritor does not live in the same municipality as the ancestor. Table 6 shows the percentage of non-resident forest owners by region, which shows regional differences. In Hokkaido, the northern-most prefecture, the percentage of non-resident forest owners reached 46.1%. In the mountainous areas of north Kanto and Kinki regions, it was ≥40%. Therefore, before discussing daily use or maintenance, it

20From the Department of Statistics, Ministry of Agriculture, Forestry and Fisheries. The survey was conducted for forest

has disappeared.

owners with holding areas ≥1 ha.

4.1.1.2. Increase in non-resident forest owners

must be stressed that many owners are non-residents.

#### 4.1.1.1. End of fuelwood use

As a result of the end of fuelwood use, the importance of fuelwood in forest management has decreased. Figure 7 shows the percentage of fuelwood to the total cutting volume. At the beginning of the 1940s, the percentage was over 60%. After World War II, it decreased in a linear manner, and fell to only 3% in 1972. Because of the end of fuelwood consumption, daily use by forest owners and their family almost disappeared, except for activities such as mushroom production.

During the period when fuelwood consumption decreased, the Forestry Agency strongly promoted the planting of coniferous trees such as C. japonica and C. obtusa. Figure 8 shows the area of plantation. In the 1950s and 1960s, the annual plantation area was approximately 300,000 ha, which began to decrease in the 1970s and is currently around 20,000 or 30,000 ha, less than 10% of the peak.

Figure 7. Percentage of fuel wood for the total cutting. Source: Forestry Agency, Division of Research [17], Forestry Agency [18–20].

Figure 8. Area of plantation. Source: Forestry Agency, Division of Research [17], Forestry Agency [1, 18–20].

To create coniferous plantations, a large amount of labor was necessary to conduct planting and initial treatment, such as weeding. In the 1950s and 1960s, the peak period of planting, family labor within the forest owner's household and employees of forest owners' cooperatives had large roles in private forestry. The forests planted during that time are now about 50 years old, and require thinning and final cutting, but these activities are conducted by forestry companies or forest owners' cooperatives. Since most forest owners do not have the machinery necessary for such activities, it is difficult for families to conduct cutting activities.

In the past, the relationship between forest land and agriculture was considered as a role of private forest. However, of all forest owners, 58% also owned farmland based on the 2015 Census of Agriculture and Forestry.<sup>20</sup> Meanwhile, based on the 2013 Housing and Land Statistics, 71% of forest owners also owned farmland [21]. Just after the end of World War II, most forest owners were probably farmers, and the percentage of non-farming forest owners has increased. In addition, in the field of farm management, the relationship to forest resources has disappeared.

#### 4.1.1.2. Increase in non-resident forest owners

which forest inheritance tax is not included in the statistics based on the total cost is almost 6–8%; however, the amount of tax currently yields a net income. This management situation is

Several forest inheritance taxes have been reduced for forest land and standing trees. As a background, forests were necessary for daily life in the past, and forestry practices and maintenance were conducted mainly by the forest owner, who invested in the forest over the long-

As a result of the end of fuelwood use, the importance of fuelwood in forest management has decreased. Figure 7 shows the percentage of fuelwood to the total cutting volume. At the beginning of the 1940s, the percentage was over 60%. After World War II, it decreased in a linear manner, and fell to only 3% in 1972. Because of the end of fuelwood consumption, daily use by forest owners and their family almost disappeared, except for activities such as mush-

During the period when fuelwood consumption decreased, the Forestry Agency strongly promoted the planting of coniferous trees such as C. japonica and C. obtusa. Figure 8 shows the area of plantation. In the 1950s and 1960s, the annual plantation area was approximately 300,000 ha, which began to decrease in the 1970s and is currently around 20,000 or 30,000 ha,

Figure 7. Percentage of fuel wood for the total cutting. Source: Forestry Agency, Division of Research [17], Forestry

the foundation of the current abandonment of forest management.

4.1.1. Changes in the background of preferential treatment for the forest inheritance tax

term, but with low profitability. However, this background has changed.

4.1. Preferential treatment for forest inheritance tax

4. Discussion

170 Taxes and Taxation Trends

4.1.1.1. End of fuelwood use

room production.

Agency [18–20].

less than 10% of the peak.

The spread of depopulation and number of non-resident forest owners is increasing throughout Japan. In the 2000 Census of Agriculture and Forestry, non-resident forest owners accounted for 24.6% of total forest owners. As the number of aged owners is increasing, inheritance appears to be increasing. In some cases, the inheritor does not live in the same municipality as the ancestor. Table 6 shows the percentage of non-resident forest owners by region, which shows regional differences. In Hokkaido, the northern-most prefecture, the percentage of non-resident forest owners reached 46.1%. In the mountainous areas of north Kanto and Kinki regions, it was ≥40%. Therefore, before discussing daily use or maintenance, it must be stressed that many owners are non-residents.

<sup>20</sup>From the Department of Statistics, Ministry of Agriculture, Forestry and Fisheries. The survey was conducted for forest owners with holding areas ≥1 ha.


although it is highly possible that the increasing number of non-resident owners will abandon

Current Status of and Problems with the Forest Inheritance Tax in Japan

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The forest inheritance tax has been reduced and the fixed property tax is exempt in protected forest<sup>21</sup> where the cutting method is determined under the Forest Act. Namely, an inheritor can inherit protected forest with a low inheritance tax rate and hold the forested area without

Under the Japanese protected forest system, forests in which cutting activities are completely prohibited exist in limited areas, while most protected forests can be cut for commercial purposes under some restrictions. However, under the current inheritance and fixed property tax, even if the forest reaches the final cutting age, protected forest owners can simply hold the forest. The government revised the Basic Plan on Forest and Forestry in May 2016, with the main goal of increasing timber production. In 2014, the domestic timber supply was 24 million m3

which the government plans to increase to 32 million m3 and 40 million m3 in 2020 and 2025, respectively. However, under the current tax system, it is possible that cutting activities in private forests, especially under various restriction systems, such as protected forests, will not be realized

Some forest owners who hold large parcels are managing their forests full-time. At times, the inheritance tax has become a considerable burden for such owners. In particular, if a large part of inherited property is forest, the forest may be clear cut to pay the inheritance tax. Since the current stumpage price is generally low, the cutting area may be large. A forest income tax is imposed on the income generated from cutting the trees to pay the inheritance tax, which may

The final cutting age for C. japonica is around 50 years, but actual cutting tends to occur at older ages.<sup>23</sup> To avoid clear-cutting at the scheduled cutting age, some forest owners have performed repeated thinning after the standard final cutting age. In these cases, inheritance may occur

21Here, protected forest refers to Hoanrin designated as Article 25 of the Forest Act (Act No. 249 of 1951), which exists in both national and non-national forests. In practice, protected forests provide another system applied only to national

22There were 5,224,000 ha of non-national protected forest at the end of the fiscal year of 2014. The total area of non-

23Takagi [13] noted that the average number of years of constituting a generation change is approximately 30 years. Therefore, a cutting rotation of 60 years is equal to two generations. At least 100 years or 150 years is needed produce large high-quality logs for use in temples, etc., meaning that forest owners must pay the inheritance tax three to five times.

,

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paying any property tax. Approximately 30% of non-national forest is protected.<sup>22</sup>

4.2.1. Forest management of large-scale forest owners and forest inheritance problems

forest practices.

as estimated.

4.1.2. Final cutting in protected forest

4.2. Forest inheritance tax and forest planning system

be a burden for the inheritor ([23], p. 241).

forests, where commercial purposes cannot be pursued.

national forest was 17,407,000 ha at the end of the fiscal year of 2011.

Source: Ministry of Agriculture, Forestry and Fisheries, the 2000 Census of Agriculture and Forestry.

Table 6. The percentage of non-resident forest owners in 2000.

Depopulation and aging have long been a problem in Japan, and there have been a number of discussions regarding the end of hamlets. The Ministry of Land, Infrastructure, Transport and Tourism ([22], p. 12) predicted an increase and decrease in population at a 500-m mesh resolution based on the 2010 Population Census. Comparing the number of meshes between 2010 and the 2050 prediction, 19% of meshes changed from populated areas to unpopulated areas, and 44% of meshes showed a decreasing rate of population of ≥50%. In these areas, the percentage of non-resident forest owners is likely to increase.

#### 4.1.1.3. Forest as property

Since most Japanese private forest owners have small holding areas, forest has an important role as household property. Such areas are too small to conduct planting and periodic cutting to receive a sufficient annual income from forest products to cover the household economy. Thus, the main deciding factor of whether to cut trees is related to the large expenditure, which has long been a characteristic of the Japanese private forest sector. In addition, daily use has disappeared and the number of non-resident forest owners has increased; therefore, the consideration of forest as property is further increasing.

The current situation surrounding private forest is changing. Generally, forest owners do not manage and work in their forest on a daily basis. This is in part because the number of nonresident owners is increasing, and will likely continue to increase in the future with the expansion of unpopulated areas. Moreover, forests are becoming land estates. At the same time, both the stumpage price and value of forest property have decreased. Under these conditions, ongoing tax reductions have the potential to encourage non-resident ownership, although it is highly possible that the increasing number of non-resident owners will abandon forest practices.
