The Yomiuri ShimbunMost of about ¥12.7 billion ($112 million) in reportable winnings from public gambling in 2015, including horse and bicycle races, was not declared to tax authorities, according to a survey by the Board of Audit.
Neither the purchase of, nor payout on, betting tickets requires confirmation of the winner’s identity, and it has come to light that many people fail to declare their winnings even if they are subject to tax.
Winnings from public gambling, in principle, are classified as “occasional income.” If the remaining balance after the deduction of the cost of purchasing winning tickets exceeds a special tax credit of ¥500,000, half of the excess becomes taxable income.
Winnings earned from bulk, continual ticket purchases for profit are classified as “miscellaneous income,” and losing tickets can be accepted as expenses in some cases.
Of all the payouts from public gambling in 2015, the Board of Audit sampled 531 cases — totaling ¥12.7 billion — in which a lump-sum of ¥10.5 million or more was paid per ticket, according to sources. The board also selected about 18,000 tax returns submitted to tax offices in the year that declared either ¥10 million or more in occasional income, or ¥10.5 million or more in miscellaneous income, and then checked if any corresponded to the 531 cases.
Only 27 cases — involving about ¥1.54 billion — were confirmed to have been declared as winnings based on the description in the tax forms.
Aside from this, the board found declarations of winnings in 27 cases of occasional income and 15 cases of miscellaneous income, which did not however mention the exact amounts, for such reasons as their being combined with other occasional or miscellaneous income.
This survey also revealed the possibility that winnings in addition to the 531 cases selected by the board were among the submitted declarations, meaning some tax returns were amended after separate inquiries by national tax authorities detected undeclared income.
Given these circumstances, the board believes that most of the about ¥12.7 billion in winnings were undeclared.
According to operators of public gambling, they do not check names and addresses of the winners regardless of the amount of a payout, so declaring reportable winnings is left entirely to the winners on a voluntary basis.
“It’s a big problem that people are not doing their duty regarding taxes,” Shigeki Morinobu, research director of the Tokyo Foundation for Policy Research who specializes in tax law. “A system must be established to identify winners at ticket counters when a certain amount of money is paid out, and also to allow national tax authorities to have access to the winners’ information. Gambling operators must improve the current situation so that tax is paid properly.”
■ Winnings hard to identify
Aiming to properly tax winnings from publicly controlled gambling, the National Tax Agency, on the occasion of tax system reform in fiscal 2013, provided the Finance Ministry with an opinion requesting that gambling operators compile legal documents that include information such as how much they paid out to whom. The idea, however, has yet to be realized because of difficulties in identifying those who received winnings.
Even in cases in which people declare winnings to tax offices, tax officers cannot tell if the earnings come from gambling or other sources unless the people filing returns note on a voluntary basis that the income came from gambling such as “horse race” or “bike race.” This is because filers usually declare winnings under the broader category of “occasional income.”
“It’s difficult to get the picture of the real situation of taxation on winnings. We don’t know the extent to which we’re failing to impose tax on them,” said a senior official at the tax agency.
Meanwhile, the tax agency can confirm winnings in cases in which people buy betting slips online because payouts are paid through bank accounts among other methods.
In fact, there is a case in which a person who received hundreds of millions of yen in winnings through buying betting tickets online was pursued by the tax agency and charged with violating the Income Tax Law. The person was convicted on charges of tax evasion.
More than 6 million people annually visit tracks during racing periods, according to the Japan Racing Association. The JRA began selling betting tickets online in 2002, and the online and telephone sales of the tickets were about ¥1.85 trillion in 2017, accounting for nearly 70 percent of overall sales.