4.2.2.2. Relationship between the new postponement and forest planning systems

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

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

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.

Sugano ([26], p. 24) conducted a questionnaire survey on forest inheritance and noted that a number of forest owners,

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

In this new measure, only inheritance tax payment can be postponed. Gift tax is not included in this new measure, which

both small- and large-scale, answered that they would dispose of their forest property if inheritance occurred.

of the number of years for postponement was extended to 40 years in the fiscal year of 1991 ([11], p. 18).

≥20 ha responded that they do not plan to make changes.

conditions are as follows.

176 Taxes and Taxation Trends

has already been introduced to farmland ([14], p. 31).

27

28

29

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

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

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

<sup>30</sup>In 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 the contents of the plan over 30 years, three-quarters of the inheritance tax is exempted.

<sup>31</sup>Under 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 targets large-scale forest owners with a specific minimum holding size.

final cutting, he/she can contact a logging company without a subsidy. Furthermore, the percentage of forest owners who want to expand forest management is generally low (see Figure 12). For example, a forest owner who owns ≥500 ha would have to expand the forest management by 150 ha, which is the upper limit of the conditions related to the postponement, and only a few forest owners have conducted this expansion to postpone the inheritance tax.

there may be an advantage to using cable logging systems. Moreover, in the Yoshino forestry area, helicopter logging is used for high quality logs. Although it may seem logical that a continuous forest management model includes the expansion of management area and forest road networks, the automatic requirement of such expansive conditions in large-scale forest

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Some problems are inherent in this new policy. For example, this system applies only to largescale forest owners with ≥100 ha, and many forest owners whose families manage their forest have <100 ha. Meanwhile, many non-residential forest owners with ≥100 ha have no interest in forest management. Regarding the forest management planning system, only forest owners with ≥100 ha can make forest management plans independently. Accordingly, in both the forest planning system and the postponement system of inheritance tax, the Forestry Agency

Therefore, the relevance of using 100 ha as a criterion should be examined. After checking publications by the Forestry Agency, only a small, detailed introduction was found ([27], p. 107). In potential support of the introduction of the postponement of the inheritance tax, 53% of forest owners with ≥500 ha thought that a reduction in the inheritance tax was necessary to support the continuation of forestry management in the next generation (see Figure 10). Judging from the results of this question in Figure 10, except forest owners with <20 ha, interest in a reduction in the inheritance tax tended to increase with increased holding size. The Forestry Agency [27] explained that the objective of creating the postponement of the inheritance tax was to support a smooth business succession to the main provider and effective and stable forestry management. However, there is no basis for the use of 100 ha as the inclusion criterion. In the questionnaire survey on taxes (Figure 10) and future plans (Figure 12), the responses of forest owners differed according to holding area, but a clear

Before World War II in Japan, inheritance operated under a family system,34 where the eldest son inherited essentially all family estates. In addition, the inheritance tax at the time was generally

34The family system was abolished after World War II, which appears to have had an effect on long-term forest management, although this remains a topic for future research. Regarding the argument related to the inheritance tax, Tezuka [16] proposed the creation of exceptions for the inheritance of forest. It is worth noting that the following rule was included in his proposal. In the case that it was agreed upon among all related persons in an argument of the distribution of forest property that one inheritor inherit all forest property and succession was conducted by this agreement, the forest inheritance tax would be exempted. Although this inheritor is not limited to the first-born person or son in his proposal, in practice, his proposal resembled the family system before World War II. Takagi [13] pointed out that the German inheritance system includes an exemption whereby the tax differs based on the relation between the ancestor and inheritor, and the maximum exemption is given to the partner and children. This exemption system is not a family system, but supports inheritance by family members. In the Japanese system, there is no difference in the potential

management should be avoided, and should allow for practical alternative measures.

4.2.3. Problems associated with the postponement measures

has used 100 ha as the limit of the desirable holding size.

reason of the use of 100 ha could not be found from these survey results.

4.3. Forest inheritance tax and forest holding size

exemption among inheritors, except for partners.

4.3.1. Small-scale family forest management and inheritance

Large-scale forest owners often own forest in remote areas, and some investment is necessary to satisfy the forest road network density conditions. In addition, after investing in the forest road network, the value of the land will increase.<sup>32</sup> Regardless, an initial cash reserve is necessary to expand the holding size or increase the forest road network. Given the long-term decrease in stumpage price, the number of large-scale forest owners who want to expand forests and invest in roads is limited.

Because the postponement measure in 2012 is connected with forest management plan, when a forest owner cannot continue the forest management plan or the certification of the forest management plan is canceled, the forest owner must pay the postponed inheritance tax. Typical examples<sup>33</sup> of this include the case that the forest owner cannot accomplish the objectives related to the expansion of forest management area and forest road network density, or the case that the forest owner entrusts all or a part of the forest management to others. Expanding holding forest and forest road networks are straightforward obligations. However, there is another condition as follows: in a year when the forest owner does not conduct any planting, cutting, or road construction, the forest owner must pay the postponed inheritance tax. Generally, forest management does not require forest practices annually; therefore, this condition may be too strong. When the forest owner pays the postponed inheritance tax, he/ she must also pay the annual interest tax of 3.6%. Considering the payment of the interest, it may be difficult to apply the postponed tax, except cases where the inheritor decisively shows continuous forest management until death.

One final comment should be made regarding the forest planning system, which has a strong connection with the inheritance tax postponement. The forest management plan is located at the bottom of the forest planning system. First, there is the Basic Plan on Forest and Forestry at the top of the forest planning system, and the current version published on May of 2016 includes the objective of increasing domestic timber production in Japan (see Section 4.1.2). The existence of the objectives of expanding management size and forest road networks in the postponement measures seems to be related to the basic policy direction of domestic timber production. However, the method for continuing forest management differs. In cases where the holding size is large and the forest area is not dispersed, the expansion of forest management area may lead to a decrease in efficiency. In addition, once the forest road network reaches a certain density, further investment may not be necessary. The current forest road volume conditions are based on logging using vehicles. While the majority of logging systems use vehicles, there are some areas where cable logging systems are used. For example, in some steep mountainous areas,

<sup>32</sup>After the construction of forest or spur roads, the value of the standing trees along the road increases. When inheritance occurs just after a road investment, the road investment results in an increase in the inheritance tax ([23], p. 241). This is the reverse case of clear-cutting before inheritance.

<sup>33</sup>Based on the webpage of the National Tax Agency. https://www.nta.go.jp/taxanswer/sozoku/4149.htm [Accessed: April 20, 2017].

there may be an advantage to using cable logging systems. Moreover, in the Yoshino forestry area, helicopter logging is used for high quality logs. Although it may seem logical that a continuous forest management model includes the expansion of management area and forest road networks, the automatic requirement of such expansive conditions in large-scale forest management should be avoided, and should allow for practical alternative measures.

#### 4.2.3. Problems associated with the postponement measures

final cutting, he/she can contact a logging company without a subsidy. Furthermore, the percentage of forest owners who want to expand forest management is generally low (see Figure 12). For example, a forest owner who owns ≥500 ha would have to expand the forest management by 150 ha, which is the upper limit of the conditions related to the postponement, and only a few forest owners have conducted this expansion to postpone the inheritance tax. Large-scale forest owners often own forest in remote areas, and some investment is necessary to satisfy the forest road network density conditions. In addition, after investing in the forest road network, the value of the land will increase.<sup>32</sup> Regardless, an initial cash reserve is necessary to expand the holding size or increase the forest road network. Given the long-term decrease in stumpage price, the number of large-scale forest owners who want to expand

Because the postponement measure in 2012 is connected with forest management plan, when a forest owner cannot continue the forest management plan or the certification of the forest management plan is canceled, the forest owner must pay the postponed inheritance tax. Typical examples<sup>33</sup> of this include the case that the forest owner cannot accomplish the objectives related to the expansion of forest management area and forest road network density, or the case that the forest owner entrusts all or a part of the forest management to others. Expanding holding forest and forest road networks are straightforward obligations. However, there is another condition as follows: in a year when the forest owner does not conduct any planting, cutting, or road construction, the forest owner must pay the postponed inheritance tax. Generally, forest management does not require forest practices annually; therefore, this condition may be too strong. When the forest owner pays the postponed inheritance tax, he/ she must also pay the annual interest tax of 3.6%. Considering the payment of the interest, it may be difficult to apply the postponed tax, except cases where the inheritor decisively shows

One final comment should be made regarding the forest planning system, which has a strong connection with the inheritance tax postponement. The forest management plan is located at the bottom of the forest planning system. First, there is the Basic Plan on Forest and Forestry at the top of the forest planning system, and the current version published on May of 2016 includes the objective of increasing domestic timber production in Japan (see Section 4.1.2). The existence of the objectives of expanding management size and forest road networks in the postponement measures seems to be related to the basic policy direction of domestic timber production. However, the method for continuing forest management differs. In cases where the holding size is large and the forest area is not dispersed, the expansion of forest management area may lead to a decrease in efficiency. In addition, once the forest road network reaches a certain density, further investment may not be necessary. The current forest road volume conditions are based on logging using vehicles. While the majority of logging systems use vehicles, there are some areas where cable logging systems are used. For example, in some steep mountainous areas,

After the construction of forest or spur roads, the value of the standing trees along the road increases. When inheritance occurs just after a road investment, the road investment results in an increase in the inheritance tax ([23], p. 241). This is

Based on the webpage of the National Tax Agency. https://www.nta.go.jp/taxanswer/sozoku/4149.htm [Accessed: April

forests and invest in roads is limited.

178 Taxes and Taxation Trends

continuous forest management until death.

the reverse case of clear-cutting before inheritance.

32

33

20, 2017].

Some problems are inherent in this new policy. For example, this system applies only to largescale forest owners with ≥100 ha, and many forest owners whose families manage their forest have <100 ha. Meanwhile, many non-residential forest owners with ≥100 ha have no interest in forest management. Regarding the forest management planning system, only forest owners with ≥100 ha can make forest management plans independently. Accordingly, in both the forest planning system and the postponement system of inheritance tax, the Forestry Agency has used 100 ha as the limit of the desirable holding size.

Therefore, the relevance of using 100 ha as a criterion should be examined. After checking publications by the Forestry Agency, only a small, detailed introduction was found ([27], p. 107). In potential support of the introduction of the postponement of the inheritance tax, 53% of forest owners with ≥500 ha thought that a reduction in the inheritance tax was necessary to support the continuation of forestry management in the next generation (see Figure 10). Judging from the results of this question in Figure 10, except forest owners with <20 ha, interest in a reduction in the inheritance tax tended to increase with increased holding size. The Forestry Agency [27] explained that the objective of creating the postponement of the inheritance tax was to support a smooth business succession to the main provider and effective and stable forestry management. However, there is no basis for the use of 100 ha as the inclusion criterion. In the questionnaire survey on taxes (Figure 10) and future plans (Figure 12), the responses of forest owners differed according to holding area, but a clear reason of the use of 100 ha could not be found from these survey results.

#### 4.3. Forest inheritance tax and forest holding size

#### 4.3.1. Small-scale family forest management and inheritance

Before World War II in Japan, inheritance operated under a family system,34 where the eldest son inherited essentially all family estates. In addition, the inheritance tax at the time was generally

<sup>34</sup>The family system was abolished after World War II, which appears to have had an effect on long-term forest management, although this remains a topic for future research. Regarding the argument related to the inheritance tax, Tezuka [16] proposed the creation of exceptions for the inheritance of forest. It is worth noting that the following rule was included in his proposal. In the case that it was agreed upon among all related persons in an argument of the distribution of forest property that one inheritor inherit all forest property and succession was conducted by this agreement, the forest inheritance tax would be exempted. Although this inheritor is not limited to the first-born person or son in his proposal, in practice, his proposal resembled the family system before World War II. Takagi [13] pointed out that the German inheritance system includes an exemption whereby the tax differs based on the relation between the ancestor and inheritor, and the maximum exemption is given to the partner and children. This exemption system is not a family system, but supports inheritance by family members. In the Japanese system, there is no difference in the potential exemption among inheritors, except for partners.

low ([28], p. 74; [12], p. 2). After World War II, the family system was abolished, and any family member could inherit forest land. In the inheritance system after the war, all children had equal rights to the inherited property, which resulted in the concern that already small farms would become further segmented ([15], p. 92). Under the new inheritance system, forest land may be divided at the time of inheritance.35 However, actual practices regarding the division of forested land at the time of inheritance are not clear due to a lack of statistical surveys.36

In Japan, forest holding sizes are small. In 2015, 829,000 forest owners owned ≥1 ha. Table 7 shows the breakdown of households by forest holding size.

Based on the 2013 Housing and Land Statistics by Statistics Bureau of the Ministry of Internal Affairs and Communications, 2,673,100 households were estimated to have forest land. However, as shown in Table 7, there is a large discrepancy between this estimate and the number of households determined by the Census of Agriculture and Forestry, which included forest

owners with <1 ha.<sup>37</sup> Between 2000 and 2015, the number of households with forest land

Figure 13. Change in the number of households with forest land between 2000 and 2015 classified by holding size.

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Source: MAFF, the 2000 and 2015 Census of Agriculture and Forestry. Note: Surveyed households had ≥1 ha.

Although there was an overall decrease of 18.6% in the number of households that owned forest land, the number of forest owners with <100 ha decreased, while the number of forest owners with ≥100 ha increased. However, because a smaller number of households had ≥100 ha, this smaller change is expressed as a large percentage. In contrast, approximately

Although there is no current survey on forest inheritance in Japan, the importance of demographics, such as depopulation and aging, is increasing. In the 2000 Census of Agriculture and Forestry, 65- to 69-year olds accounted for the largest proportion of householders who owned both farmland and forest land, but 41.0% of households had no successor for agriculture [2]. The number of aged forest owners with no successor is increasing, which could lead to an increase in inheritances at death. Under the inheritance rule created after World War II, there was some importance on gifting property before death.<sup>38</sup> Table 8 shows the number of inher-

In the case of the household successor, 31.0% of households gifted all or a part of the forest property before death. Meanwhile, in 50.5% of cases, the land was gifted before death to someone other than the successor. This shows that, at least at that time, gifting before death had some importance for the inheritance of forest, and ancestors often gifted forest to successors or other family members before death after clear-cutting. The objective was that inheritors

37The number of forest owners with 0.1–1 ha was 1,572,000 in the 1960 Census of Agriculture and Forestry. In 1960, there was another publication on the number of forest owners conducted by Forestry Agency [30]. Here, the number of forest owners with <1 ha is 3,033,000. It is possible that the number of forest owners with <0.1 ha was approximately 1.5 million

38Usui and Hayashi [4], pp. 41–42) surveyed the situation surrounding forest inheritance and classified households based on the corresponding inheritance tax as follows: (1) cutting the old, natural forest, (2) compulsory destructive cutting, (3) selling real estate, (4) borrowing money, (5) planned gift before death, and (6) a combinations of the above five patterns. The best strategy was concluded to be a combination of (1) and (5), emphasizing the role of gift before death. Yamazaki [31] pointed out that there were many cases of tax avoidance by tentative division or gifting of forest before death,

concluding that this situation was the forest owners' legitimate resistance to the forest inheritance tax.

decreased by 189,779 (18.6%) (Figure 13).

75% of owners had <5 ha of forest land (Table 7).

itances and gifts before death in the 1960s ([18, 20], p. 18).

at the time of 1960.


Source: MAFF, the 2015 Census of Agriculture and Forestry. Note: Surveyed households had ≥1 ha.

Table 7. Number of households classified by holding size (2015).

<sup>35</sup>Regarding forest plots, GHQ/SCAP ([6], p.65) noted that "some will be subdivided into small and inefficient units" unless there are changes to the taxation system. Based on the Forestry Agency [18, 20], which surveyed the state of forest inheritance in 10 regions during 1963 and 1964, farm households who owned a lot of forested land tended to divide the forest land. Farm households who owned less forest land tended to divide the farmland. Moreover, forest land was easier to divide because, in the case of forested land, there was no limit to holding as in the case of farmland. As a result, forest land was easier to segment than farmland during inheritance. Katayama [29] concluded that the only way to avoid segmentation of forest at the time of inheritance was incorporation of a company to hold the forest.

<sup>36</sup>Sadachi [11] noted that the Forestry Agency conducted a survey on inheritance in 1980 and 1988, which found that the number of forest owners almost doubled at inheritance.

low ([28], p. 74; [12], p. 2). After World War II, the family system was abolished, and any family member could inherit forest land. In the inheritance system after the war, all children had equal rights to the inherited property, which resulted in the concern that already small farms would become further segmented ([15], p. 92). Under the new inheritance system, forest land may be divided at the time of inheritance.35 However, actual practices regarding the division of forested

In Japan, forest holding sizes are small. In 2015, 829,000 forest owners owned ≥1 ha. Table 7

Based on the 2013 Housing and Land Statistics by Statistics Bureau of the Ministry of Internal Affairs and Communications, 2,673,100 households were estimated to have forest land. However, as shown in Table 7, there is a large discrepancy between this estimate and the number of households determined by the Census of Agriculture and Forestry, which included forest

land at the time of inheritance are not clear due to a lack of statistical surveys.36

Source: MAFF, the 2015 Census of Agriculture and Forestry.

segmentation of forest at the time of inheritance was incorporation of a company to hold the forest.

number of forest owners almost doubled at inheritance.

Table 7. Number of households classified by holding size (2015).

Regarding forest plots, GHQ/SCAP ([6], p.65) noted that "some will be subdivided into small and inefficient units" unless there are changes to the taxation system. Based on the Forestry Agency [18, 20], which surveyed the state of forest inheritance in 10 regions during 1963 and 1964, farm households who owned a lot of forested land tended to divide the forest land. Farm households who owned less forest land tended to divide the farmland. Moreover, forest land was easier to divide because, in the case of forested land, there was no limit to holding as in the case of farmland. As a result, forest land was easier to segment than farmland during inheritance. Katayama [29] concluded that the only way to avoid

Sadachi [11] noted that the Forestry Agency conducted a survey on inheritance in 1980 and 1988, which found that the

Note: Surveyed households had ≥1 ha.

35

36

shows the breakdown of households by forest holding size.

180 Taxes and Taxation Trends

Figure 13. Change in the number of households with forest land between 2000 and 2015 classified by holding size. Source: MAFF, the 2000 and 2015 Census of Agriculture and Forestry. Note: Surveyed households had ≥1 ha.

owners with <1 ha.<sup>37</sup> Between 2000 and 2015, the number of households with forest land decreased by 189,779 (18.6%) (Figure 13).

Although there was an overall decrease of 18.6% in the number of households that owned forest land, the number of forest owners with <100 ha decreased, while the number of forest owners with ≥100 ha increased. However, because a smaller number of households had ≥100 ha, this smaller change is expressed as a large percentage. In contrast, approximately 75% of owners had <5 ha of forest land (Table 7).

Although there is no current survey on forest inheritance in Japan, the importance of demographics, such as depopulation and aging, is increasing. In the 2000 Census of Agriculture and Forestry, 65- to 69-year olds accounted for the largest proportion of householders who owned both farmland and forest land, but 41.0% of households had no successor for agriculture [2]. The number of aged forest owners with no successor is increasing, which could lead to an increase in inheritances at death. Under the inheritance rule created after World War II, there was some importance on gifting property before death.<sup>38</sup> Table 8 shows the number of inheritances and gifts before death in the 1960s ([18, 20], p. 18).

In the case of the household successor, 31.0% of households gifted all or a part of the forest property before death. Meanwhile, in 50.5% of cases, the land was gifted before death to someone other than the successor. This shows that, at least at that time, gifting before death had some importance for the inheritance of forest, and ancestors often gifted forest to successors or other family members before death after clear-cutting. The objective was that inheritors

<sup>37</sup>The number of forest owners with 0.1–1 ha was 1,572,000 in the 1960 Census of Agriculture and Forestry. In 1960, there was another publication on the number of forest owners conducted by Forestry Agency [30]. Here, the number of forest owners with <1 ha is 3,033,000. It is possible that the number of forest owners with <0.1 ha was approximately 1.5 million at the time of 1960.

<sup>38</sup>Usui and Hayashi [4], pp. 41–42) surveyed the situation surrounding forest inheritance and classified households based on the corresponding inheritance tax as follows: (1) cutting the old, natural forest, (2) compulsory destructive cutting, (3) selling real estate, (4) borrowing money, (5) planned gift before death, and (6) a combinations of the above five patterns. The best strategy was concluded to be a combination of (1) and (5), emphasizing the role of gift before death. Yamazaki [31] pointed out that there were many cases of tax avoidance by tentative division or gifting of forest before death, concluding that this situation was the forest owners' legitimate resistance to the forest inheritance tax.


protection against damage by deer. Without effective countermeasures for such damage, it is difficult to conduct clear-cutting and reforestation of coniferous trees such as C. japonica or C. obtusa, even in very small areas. Currently, the benefits of conducting clear-cutting to decrease the value of standing trees and gifting to successors before death seems to have decreased, especially for small-scale owners. Future research should clarify the current state

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One of the current main forestry policies by the Forestry Agency is cost reduction in forestry production. Concurrently, the Forestry Agency has been promoting expansion of forest management planning area, and an important objective of this policy is reducing associated costs. Article 12 of the Basic Forestry Act (Act No. 161 of 1964) determined that the expansion of forestry management was necessary for small-scale forestry. The introduction of the forest management planning system in 2012 was also related to the expansion of forest management and cost reduction; however, increases in area with forest management plans have stagnated. Although detailed figures have not been published, the Basic Forest and Forestry Plan stated in May 2016 that 28% of forests were covered by forest management plan ([32], p. 4). The reason for the lack of expansion of the area under forest management plans was not clarified due to a lack of data; however, one reason seems to be that forest management planning is closely connected to the subsidy system. This close connection is useful for forest owners who want to obtain a subsidy to conduct forest practices. For forest owners' cooperatives, such a system is beneficial, because owners in such cooperatives can work together to make and execute a plan. However, among forest owners who do not want to conduct thinning or construct forest roads, the current forest management planning system may not be attractive. Future analyses should clarify the reasons

Within the scope of this study, only one relationship between aging and inheritance is discussed. Considering the relationship between householder age and the percentage of households who sold timber in the previous year based on the 2000 Census of Agriculture and Forestry, 60- to 64-year olds showed the peak percentage (5.3%). Meanwhile, 3.3 and 3.7 of 80- to 84-year olds and ≥85-year olds, respectively, sold timber in the previous year [2]. Although the current situation is unknown, because the last available data are from 2000, this trend appears to be related to the current decrease in willingness to sell timber, especially among >80-year-old forest owners. Figure 14 shows the age of the major financial supporter of

In Japan, 65 is the usual age of retirement. The percentage of ≥65 years old has reached 51.8% in Figure 14. Considering that the peak age-class of timber sales was 60- to 64-year-olds in the 2000 Census of Agriculture and Forestry, the number of forest owners who want to sell standing trees may decrease. Ultimately, the low percentage of area covered by forest manage-

In forests owned by aging persons, especially small-scale forests without a forest management plan, there is a high likelihood that forest roads will not be constructed and the owners will simply hold the forest without managing it. In mountainous areas, where owners have small

households with forest from the 2013 Housing and Land Statistics.

ment plan could be related to demographic factors.

of inheritance using on-site surveys.

4.3.2. Forest management intensification

for the low percentage of planning area.

Source: Forestry Agency ([18, 20] p. 18, Table 3). Note: Based on 200 surveyed households.

Table 8. Gifting of forest land before death (1960s).

would not be burdened with paying the forest inheritance tax. The tax rate of the gift tax is higher than that of the inheritance tax; however, immediately after clear-cutting, the value of standing trees is negligible and only the forest land has value, which is generally low, excluding areas near cities. Even at a high gift tax rate, if the value of property is low, the ultimate amount of gift tax is low. When a forest owner conducts clear-cutting in a small area and gifts it to inheritor(s) each year, the forest inheritance tax is greatly reduced. As shown in Table 8, someone other than the successor received forest land in 109 (54.5%) of the surveyed households, indicative of segmentalization.

In households with both farmland and forest land, it may be possible to use both gifts before death and inheritance after death to transfer land to a successor. For example, old coniferous trees can be cut and gifted before death, while low-value broad-leaved trees are left and inherited at death to reduce the total tax. In addition to benefits to the inheritor, there is another explanation of why clear-cutting was common at that time. In the 1950s, the market share of domestic logs was high, and forest owners could sell their trees and receive income at almost any time. Therefore, both conditions, the existence of an inheritor and income from clear-cutting, were satisfied.

However, since 41% of households who owned farm and forest land in 2000 had no inheritor, many ancestors could not gift their forest before death.<sup>39</sup> Moreover, because of the low stumpage price, it was sometimes difficult to pay for reforestation after clear-cutting. In addition, in some areas, the deer population has increased markedly, resulting in the necessity to invest in

<sup>39</sup>Attention must be paid to the difference between inheritor and successor of agriculture and forestry. Forestry Agency [18, 20] showed this point already by the on-site survey in Nagano Prefecture in the 1960s. Here, the case that children was only one son, was introduced, and whether he will succeed agriculture and forestry or not was serious interest for parents. Recently, the number of children is decreasing in Japan, this is also related to the problems of successors of agriculture and forestry.

protection against damage by deer. Without effective countermeasures for such damage, it is difficult to conduct clear-cutting and reforestation of coniferous trees such as C. japonica or C. obtusa, even in very small areas. Currently, the benefits of conducting clear-cutting to decrease the value of standing trees and gifting to successors before death seems to have decreased, especially for small-scale owners. Future research should clarify the current state of inheritance using on-site surveys.

#### 4.3.2. Forest management intensification

would not be burdened with paying the forest inheritance tax. The tax rate of the gift tax is higher than that of the inheritance tax; however, immediately after clear-cutting, the value of standing trees is negligible and only the forest land has value, which is generally low, excluding areas near cities. Even at a high gift tax rate, if the value of property is low, the ultimate amount of gift tax is low. When a forest owner conducts clear-cutting in a small area and gifts it to inheritor(s) each year, the forest inheritance tax is greatly reduced. As shown in Table 8, someone other than the successor received forest land in 109 (54.5%) of the surveyed house-

Source: Forestry Agency ([18, 20] p. 18, Table 3). Note: Based on 200 surveyed households.

Table 8. Gifting of forest land before death (1960s).

In households with both farmland and forest land, it may be possible to use both gifts before death and inheritance after death to transfer land to a successor. For example, old coniferous trees can be cut and gifted before death, while low-value broad-leaved trees are left and inherited at death to reduce the total tax. In addition to benefits to the inheritor, there is another explanation of why clear-cutting was common at that time. In the 1950s, the market share of domestic logs was high, and forest owners could sell their trees and receive income at almost any time. Therefore, both conditions, the existence of an inheritor and income from

However, since 41% of households who owned farm and forest land in 2000 had no inheritor, many ancestors could not gift their forest before death.<sup>39</sup> Moreover, because of the low stumpage price, it was sometimes difficult to pay for reforestation after clear-cutting. In addition, in some areas, the deer population has increased markedly, resulting in the necessity to invest in

Attention must be paid to the difference between inheritor and successor of agriculture and forestry. Forestry Agency [18, 20] showed this point already by the on-site survey in Nagano Prefecture in the 1960s. Here, the case that children was only one son, was introduced, and whether he will succeed agriculture and forestry or not was serious interest for parents. Recently, the number of children is decreasing in Japan, this is also related to the problems of successors of agriculture and

holds, indicative of segmentalization.

182 Taxes and Taxation Trends

clear-cutting, were satisfied.

39

forestry.

One of the current main forestry policies by the Forestry Agency is cost reduction in forestry production. Concurrently, the Forestry Agency has been promoting expansion of forest management planning area, and an important objective of this policy is reducing associated costs. Article 12 of the Basic Forestry Act (Act No. 161 of 1964) determined that the expansion of forestry management was necessary for small-scale forestry. The introduction of the forest management planning system in 2012 was also related to the expansion of forest management and cost reduction; however, increases in area with forest management plans have stagnated. Although detailed figures have not been published, the Basic Forest and Forestry Plan stated in May 2016 that 28% of forests were covered by forest management plan ([32], p. 4). The reason for the lack of expansion of the area under forest management plans was not clarified due to a lack of data; however, one reason seems to be that forest management planning is closely connected to the subsidy system. This close connection is useful for forest owners who want to obtain a subsidy to conduct forest practices. For forest owners' cooperatives, such a system is beneficial, because owners in such cooperatives can work together to make and execute a plan. However, among forest owners who do not want to conduct thinning or construct forest roads, the current forest management planning system may not be attractive. Future analyses should clarify the reasons for the low percentage of planning area.

Within the scope of this study, only one relationship between aging and inheritance is discussed. Considering the relationship between householder age and the percentage of households who sold timber in the previous year based on the 2000 Census of Agriculture and Forestry, 60- to 64-year olds showed the peak percentage (5.3%). Meanwhile, 3.3 and 3.7 of 80- to 84-year olds and ≥85-year olds, respectively, sold timber in the previous year [2]. Although the current situation is unknown, because the last available data are from 2000, this trend appears to be related to the current decrease in willingness to sell timber, especially among >80-year-old forest owners. Figure 14 shows the age of the major financial supporter of households with forest from the 2013 Housing and Land Statistics.

In Japan, 65 is the usual age of retirement. The percentage of ≥65 years old has reached 51.8% in Figure 14. Considering that the peak age-class of timber sales was 60- to 64-year-olds in the 2000 Census of Agriculture and Forestry, the number of forest owners who want to sell standing trees may decrease. Ultimately, the low percentage of area covered by forest management plan could be related to demographic factors.

In forests owned by aging persons, especially small-scale forests without a forest management plan, there is a high likelihood that forest roads will not be constructed and the owners will simply hold the forest without managing it. In mountainous areas, where owners have small

stumpage prices that has occurred and the amendment of methods to evaluate forest land and standing trees. As a result, the value of forests has decreased.<sup>41</sup> However, the number of nonresident non-farmer inheritors is increasing, making it necessary to reconsider the forest inheritance system, including the inheritance tax,42 because the background and assumptions

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

http://dx.doi.org/10.5772/intechopen.74379

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A new classification for private forest owners is needed. Under the current forest inheritance tax system framework, forest owners who manage their forests continuously with a plan, do not live on the land, and have no knowledge or concern about their forest management practices are treated equally, as if they were a family working the forest. In the latter case, this is just a holding of an estate, and the number of such forest owners will likely increase in the future. Tax reduction measures for such forest owners should be reconsidered.<sup>43</sup> If the reduction policy were canceled for such forest owners, they could begin forest management or sell the forest to appropriate persons who could manage it. A major problem is determining how to group forest owners. For example, forest owners could be divided into resident or nonresident owners,<sup>44</sup> but other important factors include the existence or lack of forest management, a forest plan, investments to the forest, etc. Many technical problems are readily imag-

ined for each of these methods, which should be examined in detail in future research.

A postponement measure for forest owners with ≥100 ha of forest was introduced in 2012, but few people have applied to this new system, because there are several inhibitory conditions related to the postponement of the inheritance tax. The situation surrounding management of forest owners with ≥100 ha of forest is varied. For example, 43.9 and 33.9% of forest owners hold 100–500 ha and ≥500 ha of forest land, respectively, without managing it; therefore, it is difficult to use the holding size as the sole criterion for the inheritance tax postponement (Figure 12).45

Under the current inheritance tax postponement system and the forest management planning system, the criterion of large-scale forest management is defined as ≥100 ha. However, there appears to be no theoretical or statistical basis for the use of 100 ha as the cut-off. Holding size should be considered as a criterion, but the 100-ha holding size criterion is not necessarily justified. Although the introduction of an appropriate minimum area may be necessary,

41Tezuka [16] pointed out the low inheritance tax in Germany. The value of 80–100-year-old spruce was almost equal to one fifteenth of 90-year-old C. obtusa. Since the value of the standing trees at the standard cutting age has decreased, as

42As shown in Table 5, the total amount of various taxes or public dues is now sometimes greater than the net income from timber sales; thus, problems may exist in the taxation system beyond the forest inheritance tax; however, this was beyond the scope of this paper. Supporting this, Kim [35] noted increases in the burden of several taxes other than the inheritance

43When non-resident forest owners want to continue just holding, the amount of inheritance tax and annual municipal fixed proper tax must be low. To maintain the low-value of standing trees, forest roads should not be developed because,

44Taxation of non-resident forest owners was discussed before World War II in Hokkaido, which had a high percentage of

45The current postponement of the forest inheritance tax is closely connected with the forest management plan. The period of the current plan is 5 years, and the plan focuses on forest practices and forest road construction, which are related to the subsidy system. The current management planning system appears to have problems from the perspective of the

after road construction, the value of the standing trees along the forest increases, resulting in higher taxes.

for preferential treatment have changed.

shown in Figure 2, the difference appears to be decreasing.

non-resident forest owners ([36], pp. 47–51, pp. 83–85).

inheritance system, and should be examined further in future research.

tax in Japan.

Figure 14. Age of the major financial supporter of households holding forests. Source: MIC, Statistics Bureau ([33], Table 87). Note: The major financial supporter is not the same as the householder. Generally, financial supporters are younger than householders.

areas of farmland, forest land, and housing land, the total value of the inheritance property may be less than the minimum taxable rate, and the inheritor may continue to hold the forest without paying the inheritance tax when inheriting the forest property. This ensures that the small-sized holdings will continue in the future.

The total population of Japan reached to a peak in the 2010 Population Census, but showed a decrease in the 2015 Population Census. The National Institute of Population and Social Security Research ([34], Table A-8) has estimated that the total population in 100 years will decrease to almost one-third based on an analysis of the 2010 Population Census. In such a situation, if the system and conditions surrounding forest management do not change, the percentage of non-resident forest owners will increase.

Immediately after the end of World War II, most forest owners were also farmers. Since the family system was abolished after the war, children other than the successor could inherit forest, and many children moved to cities when beginning school or for a job. Therefore, the percentage of non-farmer forest owners has been increasing. In the 1990 Census of Agriculture and Forestry, 36.4% of forest owners with ≥0.1 ha were non-farmers, while 42.0% with ≥1 ha forest were nonfarmers in the 2015 Census of Agriculture and Forestry.40 The situation surrounding non-farmer non-resident forest owners is unclear, and should be examined further in future research. Regarding forest owners who live in urban areas, since the value of housing land is generally high, the total value of inheritance properties may surpass the minimum value for imposing the inheritance tax, and this set of circumstances should also be examined further in future research.
