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

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

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

<sup>21</sup>Here, 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 forests, where commercial purposes cannot be pursued.

<sup>22</sup>There were 5,224,000 ha of non-national protected forest at the end of the fiscal year of 2014. The total area of nonnational forest was 17,407,000 ha at the end of the fiscal year of 2011.

<sup>23</sup>Takagi [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.

more than once between planting and final cutting.<sup>24</sup> Therefore, the burden of the inheritance tax can influence scheduled forest practices.

To illustrate the effects of this, the following section describes the opinions of forest owners, including opinions on the inheritance tax, based on the results of the opinion survey on forestry management25 conducted by the Forestry Agency in the fiscal year of 2009. Figure 9 shows the responses to the question on what support or measures are necessary for forestry management to continue in the next generation. The most frequent answer was the stabilization of timber price. This response reflects the long-term decrease in stumpage price (Figure 6). Since forest owners cannot pay the costs associated with reforestation under low stumpage prices, the second-most frequent answer was to subsidize the full cost of reforestation. Following these, a reduction in the inheritance and gift tax, development of forest owners' cooperatives and forestry entities, and reduction in fixed property tax were also deemed important. Due to the low stumpage price, it is necessary to decrease management costs, for example, by intensifying forest practices through the development of forest owners' cooperatives, etc. After these three suggestions, improvements related to taxes were selected, because the current inheritance tax has decreased correspondingly, but the decrease in the stumpage price is severe, and it is not practical for forest owners to cut standing trees under such stumpage prices.

inheritance tax in the case of owners with <20 ha.26 Among owners with ≥20 ha, the percentage of respondents who selected inheritance tax was larger, markedly so in the case of ≥500 ha, with 53.1% selecting inheritance tax. These results showed that the importance of inheritance

Figure 10. Percentage of forest owners classified by holding size who considered taxes to be an impediment to the

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Figure 11 shows the same options related to taxes as Figure 10, but with the owners classified by management situation from the perspective of annual income. Forest owners with an annual income from timber sales more often considered the inheritance tax and gift tax to be an impediment than the property tax. Only owners holding unmanaged forested land more often selected the fixed property tax as a problem. To summarize these results, there is high demand for a reduction in the inheritance tax and gift tax among large-scale forest owners who

Figure 11. Percentage of forest owners classified by management situation and income who considered taxes to be an

26In the case of small-scale owners, owners can obtain income from timber sold at long intervals, and must pay fixed

impediment to the continuation of forestry management. Source: MAFF ([24], pp. 18–19).

tax increased according to holding size.

continuation of forestry management. Source: MAFF ([24], pp. 18–19).

sell timber every year.

property tax every year ([25], p. 32).

Figure 10 shows the percentage of respondents who selected the two tax-related responses, a reduction in inheritance and gift tax and a reduction in fixed property tax, classified by holding area of forest. The frequency of annual fixed property tax was only larger than that of

Figure 9. Forest owner opinions on strategies to support forestry management. Source: MAFF ([24], pp. 18–19). Note: Three answers were required.

<sup>24</sup>The basic idea of the Japanese inheritance system is that all inheritance property should be valued and paid at the time of inheritance, thus inheritance may occur more than once before final cutting. In the case of the United Kingdom, the inheritance tax is imposed only once at the time of cutting ([13], pp. 135–136).

<sup>25</sup>The opinion survey was conducted on March and April 2010. The survey was conducted for 1,607 forest owners selected from forest owners surveyed at the 2005 Agriculture and Forestry Census, of which 1,013 completed the survey [24].

more than once between planting and final cutting.<sup>24</sup> Therefore, the burden of the inheritance

To illustrate the effects of this, the following section describes the opinions of forest owners, including opinions on the inheritance tax, based on the results of the opinion survey on forestry management25 conducted by the Forestry Agency in the fiscal year of 2009. Figure 9 shows the responses to the question on what support or measures are necessary for forestry management to continue in the next generation. The most frequent answer was the stabilization of timber price. This response reflects the long-term decrease in stumpage price (Figure 6). Since forest owners cannot pay the costs associated with reforestation under low stumpage prices, the second-most frequent answer was to subsidize the full cost of reforestation. Following these, a reduction in the inheritance and gift tax, development of forest owners' cooperatives and forestry entities, and reduction in fixed property tax were also deemed important. Due to the low stumpage price, it is necessary to decrease management costs, for example, by intensifying forest practices through the development of forest owners' cooperatives, etc. After these three suggestions, improvements related to taxes were selected, because the current inheritance tax has decreased correspondingly, but the decrease in the stumpage price is severe, and it is not

Figure 10 shows the percentage of respondents who selected the two tax-related responses, a reduction in inheritance and gift tax and a reduction in fixed property tax, classified by holding area of forest. The frequency of annual fixed property tax was only larger than that of

Figure 9. Forest owner opinions on strategies to support forestry management. Source: MAFF ([24], pp. 18–19). Note:

The basic idea of the Japanese inheritance system is that all inheritance property should be valued and paid at the time of inheritance, thus inheritance may occur more than once before final cutting. In the case of the United Kingdom, the

The opinion survey was conducted on March and April 2010. The survey was conducted for 1,607 forest owners selected from forest owners surveyed at the 2005 Agriculture and Forestry Census, of which 1,013 completed the survey [24].

inheritance tax is imposed only once at the time of cutting ([13], pp. 135–136).

practical for forest owners to cut standing trees under such stumpage prices.

tax can influence scheduled forest practices.

174 Taxes and Taxation Trends

Three answers were required.

24

25

Figure 10. Percentage of forest owners classified by holding size who considered taxes to be an impediment to the continuation of forestry management. Source: MAFF ([24], pp. 18–19).

inheritance tax in the case of owners with <20 ha.26 Among owners with ≥20 ha, the percentage of respondents who selected inheritance tax was larger, markedly so in the case of ≥500 ha, with 53.1% selecting inheritance tax. These results showed that the importance of inheritance tax increased according to holding size.

Figure 11 shows the same options related to taxes as Figure 10, but with the owners classified by management situation from the perspective of annual income. Forest owners with an annual income from timber sales more often considered the inheritance tax and gift tax to be an impediment than the property tax. Only owners holding unmanaged forested land more often selected the fixed property tax as a problem. To summarize these results, there is high demand for a reduction in the inheritance tax and gift tax among large-scale forest owners who sell timber every year.

Figure 11. Percentage of forest owners classified by management situation and income who considered taxes to be an impediment to the continuation of forestry management. Source: MAFF ([24], pp. 18–19).

<sup>26</sup>In the case of small-scale owners, owners can obtain income from timber sold at long intervals, and must pay fixed property tax every year ([25], p. 32).

For standing trees, the age should not have reached the standard age for final cutting, as determined in municipal forest development plans, by a specific year. The specific year is the

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The inheritor must inherit all of the ancestor's forest management according to the forest management plan of the ancestor. The inheritor must succeed at completing the ancestor's forest management plan, continue making a forest management plan, and conduct forest

The postponement of paying inheritance tax is available until the day of the death of the inheritor for up to 80% of the amount of inheritance tax imposed on forests that satisfy the above conditions. At the time of the death of the inheritor, the total amount of postponed tax is exempted. Since the new postponement has only just been introduced, data on this postponement are not available. However, Sugano and Tani ([14], p. 32) reported that applications for

The new postponement system introduced in 2012 has a close relationship with the forest management planning system based on the Forest Act.<sup>30</sup> The current forest management planning system introduced in 2012 focuses on intensive forest management and improvements to forest road networks. When the forest owner makes a forest management plan, the forest owner can receive several benefits, such as a reduction in forest inheritance tax, reduction in forest income tax, subsidy related to reforestation, or low-interest loan on forestry from the Japan Finance Corporation. Although many coniferous plantations planted after World War II now require thinning, if a forest owner wants to conduct thinning as well as construct forest or spur roads, a forest management plan is necessary to obtain a subsidy. Ultimately, forest management plans have a close relationship with government subsidies. There are three types of forest management plans, one of which can be made by sole forest owners holding ≥100 ha of forest.<sup>31</sup> Under the postponement system, a one-person forest management plan is necessary. The two additional conditions related to the forest management plan necessary to obtain a postponement of inheritance tax are that within 10 years after inheritance, the forest owner should expand the management area at least 30%, up to 150 ha, and should expand forest or spur roads to a level determined by the local municipal forest development plan.

In old forests with a dense forest road network, it is not necessary for forest owners to obtain a subsidy related to forest practices; therefore, there is little merit to making a forest management plan. When there are no special benefits to obtaining a subsidy, a forest management plan may constrain forest management. For example, when forest owner wants to conduct

30In the case of exceptional measure in France, a forest plan is necessary ([16], p. 4). Based on the act enacted in 1963, forest owners who own ≥25 ha have an obligation to make a simplified forest management plan. When the forest owner follows

31Under the amendment of the Forest Act in 1939, forest owners with ≥50 ha must make a forest plan, and forest owners with <50 ha must join a regional forest owners' cooperative, and the cooperative must have a forest plan. The current system has a common characteristic with the 1939 planning system in that it includes a forest management plan that

the contents of the plan over 30 years, three-quarters of the inheritance tax is exempted.

targets large-scale forest owners with a specific minimum holding size.

4.2.2.2. Relationship between the new postponement and forest planning systems

average remaining lifetime up to 30 years.

practices according to the forest management plan.

this tax postponement are currently very low.

Figure 12. Forest owners intended future forestry management policy. Source: MAFF ([24], p. 11).

Figure 12 shows the results of the responses to the survey question related to future management policy. Among owners with a holding area <20 ha, approximately 80% answered that they plan to hold without management. This same response was selected by 43.9 and 33.9% of owners with holding areas of 100–500 and ≥500, respectively. Meanwhile, there was no clear relationship among owners who responded that they plan to end forestry management by holding size.<sup>27</sup> In addition, 4.6, 5.8, and 4.8% of owners with <20, 100–500, and ≥500 ha, respectively, responded that they plan to expand management. Finally, 35–40% of owners with ≥20 ha responded that they do not plan to make changes.

#### 4.2.2. Postponement of inheritance tax payment by large-scale forest owners

#### 4.2.2.1. New measures on the postponement of payment of inheritance tax in 2014

The government introduced a new system in April 2012 allowing the postponement<sup>28</sup> of the inheritance tax payment<sup>29</sup> under specific conditions for forest owners with ≥100 ha. The basic conditions are as follows.

For forest land, the forest management plan made by the ancestor must be certified. In addition, forest practices and the investment to forest road network must be conducted or planned for forests to be eligible for postponement, and the total forest area must be ≥100 ha.

<sup>27</sup>Sugano ([26], p. 24) conducted a questionnaire survey on forest inheritance and noted that a number of forest owners, both small- and large-scale, answered that they would dispose of their forest property if inheritance occurred.

<sup>28</sup>A postponement system for the delayed payment of the inheritance tax applied to all forests existed before 2012 when the new postponement for only large-scale forest owners was introduced. The main contents are as follows. The content of the postponement is equal to the payment during less than 15 years with 5.4% interest tax. For standing trees located in a forest under a forest management plan, it is an unequal payment with a reduced rate of 3.6% interest ([9], pp. 102–104). The interest tax was initially 4.8%, but decreased to 4.2% in the fiscal year of 1987, and decreased to 3.6% in the fiscal year of 1990 ([11], pp. 17–18). For forests under a special forest management plan promoting long rotation operation, the limit of the number of years for postponement was extended to 40 years in the fiscal year of 1991 ([11], p. 18).

<sup>29</sup>In this new measure, only inheritance tax payment can be postponed. Gift tax is not included in this new measure, which has already been introduced to farmland ([14], p. 31).

For standing trees, the age should not have reached the standard age for final cutting, as determined in municipal forest development plans, by a specific year. The specific year is the average remaining lifetime up to 30 years.

The inheritor must inherit all of the ancestor's forest management according to the forest management plan of the ancestor. The inheritor must succeed at completing the ancestor's forest management plan, continue making a forest management plan, and conduct forest practices according to the forest management plan.

The postponement of paying inheritance tax is available until the day of the death of the inheritor for up to 80% of the amount of inheritance tax imposed on forests that satisfy the above conditions. At the time of the death of the inheritor, the total amount of postponed tax is exempted. Since the new postponement has only just been introduced, data on this postponement are not available. However, Sugano and Tani ([14], p. 32) reported that applications for this tax postponement are currently very low.
