The Blue-Eye Blues

From Tokyo's Ministry of Justice last week came an ominous announcement: starting next January, Japanese police will investigate "all activities—both public and private—of foreign residents." The announcement meant that the Japanese government was putting teeth in the tough new tax rules laid down for foreigners by Finance Minister Hisato Ichimada, and was planning to use the police to get reports on everything from house rent to laundry bills. It was further harsh evidence of worsening relations between U.S. businessmen and the Japanese government.

Under Minister Ichimada's new rules, U.S. businessmen in Japan will pay up to 65% tax on all income, whether earned in Japan or elsewhere, e.g., stock dividends received in the U.S. are taxable. Headlined Tokyo's big (circ. more than 4,000,000) Asahi Shimbun: NEW TAXES MAKE FOREIGN BLUE EYES POP.

The word "pop" was an understatement. After slamming the door on more capital investment by U.S. companies last winter (TIME, Dec. 20 et seq.), Japan now seemed to be doing its best to lock out individual U.S. businessmen as well. Even for low-income businessmen the rates are prohibitive, e.g., a $6,000-a-year businessman with three dependents must pay $2,639 in taxes v. some $600 in the U.S. On a $20,000 salary, the bite is $12-680 v. about $4,124 at home.

Unequal Equality. Finance Minister Ichimada has decided to cancel the favorable tax deal given foreigners since 1951, make everyone pay the same stiff tax as Japanese. While that sounds fair, U.S. businessmen in Japan complain bitterly that the treatment they get is far from equal. Though many Japanese businessmen make big salaries, ride around in Cadillacs and spend freely, only a handful (400 in 1954) declare salaries as high as $15,000 a year. An executive in a big firm may declare a weekly salary of $100—and pay taxes on it. But his salary is only the beginning. He may get another $100 a week cash from a secret "expense" fund which many Japanese companies maintain. At night he rides home in a company-owned car, for his company-owned house he pays a token $5 to $10 monthly rent, his wife buys her clothes on a company charge account, the family food comes from company cafeterias, his son goes to college on a company scholarship.

Few Japanese businessmen get into trouble with the taxmen over such dodges. But no U.S. businessman wants to take the legal risk. In any event, under a new U.S.-Japanese tax agreement, Japanese tax collectors will be able to ship any doubtful tax returns to the U.S. Internal Revenue Service in Washington for a quick double check against tax returns made by the businessman's home office.

The Smell of '35. Recently the U.S. Chamber of Commerce held a meeting with Japanese tax officials, hoping to work out a compromise. But the businessmen got only a vague promise that Finance Minister Ichimada would "study the situation." Most think that Ichimada will use the new tax rules to weed out the U.S. business community in Japan by applying them leniently or harshly depending on the individual businessman.