Japan’s first nationwide social security and tax identification system will go into effect January 2016. Under the new system, dubbed My Number, every registered resident of Japan will be assigned a unique 12-digit ID that will remain unchanged throughout his or her lifetime and will be used for managing social security, tax administration, disaster relief, and potentially other areas, as determined by local statutes.
As part of the new system, “personal number cards” (my number cards) will be issued to residents upon request. The cards in turn will provide access to a secure website, My Portal, where residents can access personal and financial information, account activity, and login history; apply for government benefits or services online; and receive useful notifications from public agencies. This could herald a historic shift from user-initiated to agency-initiated delivery of public services.
Basic Advantages
According to the Outline of the Social Security and Tax Number System drawn up by the Headquarters of the Government and Ruling Parties for Social Security Reform, the national ID number system will offer the following concrete benefits:
- Public agencies at the national and local level will be able to accurately and efficiently track and share information on social security inputs and payouts for each individual to avoid such problems as underpayment, overpayment, and duplication of benefits, thereby ensuring equitable delivery of benefits fine-tuned to the circumstances of each individual and household.
- Tax authorities will be able to use the ID numbers to efficiently match and collate information on income and dependents from various sources for more accurate assessment of taxable income.
- Residents will be able to use home computers and other devices to easily check their own tax and social security records, as well as to access information and applications for services or benefits.
- Public agencies at the national and local level will be able to promptly share information from tax returns, resident registries, and other documents that residents are required to submit when applying for benefits and services, thereby reducing the burden of paperwork (particularly the need to attach hard copies of documents) and boosting efficiency and convenience for residents and agencies alike.
- ID cards incorporating chip technology have the potential to simplify life for citizens and residents by integrating various functions now performed separately by health insurance cards, pension booklets, etc.
To better understand this important new social infrastructure, let us first examine and compare the uses of its three basic components: the My Number ID, personal number cards, and My Portal.
Under the law, the My Number ID can currently be used only for the administrative purposes of taxation, social security, and emergency management. Unauthorized or unlawful use is punishable by stiff penalties.
The personal number card, however, promises a wide range of other uses. More than a simple ID card, it incorporates chip technology to facilitate secure transactions using public key encryption. Since users can conduct private transactions without sharing their actual ID numbers, the IC card minimizes privacy and information security risks and will allow private industry to develop a wide array of useful applications free from regulatory constraints. Businesses are already exploring possibilities for the use of personal number cards in online banking and e-commerce.
My Portal, scheduled for launch in 2017, should open the door to even more possibilities. At first, My Portal will simply function to permit users to access and verify their own specific personal information and receive administrative notifications online. Later, however, it is likely to incorporate digital mailboxes and payment processing functions, linking users to a wide variety of services in the private as well as public sector. By inserting one’s personal number card in a card reader and keying in one’s password, it should also be possible to use My Portal to store records of offline transactions.
In short, for users to experience the full benefits of the new system, they will need to apply for personal number cards and register for My Portal.
Europe’s Diverse National ID Systems
To place the new My Number system in a broader international context, let us take a moment to look at the use of similar systems in Western Europe.
The industrialized country that has made the most extensive use of national identification numbers is Sweden, which introduced Personal Identity Numbers in 1947. The numbers, issued by the Swedish Tax Agency, are used by various government authorities to track and share resident registration information. They are also used in the private sector. For example, for marketing purposes, businesses can pay the government for information on individuals living in a particular area, including their names, addresses, and even income.
Germany is at the opposite end of the spectrum. Among Germans, any discussion of national identification numbers tends to conjure up images of the numbers the Nazis tattooed on the arms of Jews and other concentration camp inmates. As a result, popular opposition has blocked the adoption of a unified national identification system, and taxpayer ID numbers are used for tax purposes only.
The Netherlands stands roughly midway between these two extremes. In 2007, the Netherlands instituted a Citizen Service Number, which took the place of the so-called SoFi (social security and financial) number. Since then, amid ongoing public debate, use of the number has expanded year by year, and today it is used for a wide range of administrative purposes.
As these examples suggest, historical and other factors have determined the use of national identification numbers, resulting in considerable variation from one country to the next. In Japan, the government is starting small, but during the next three years it hopes to expand the numbers’ use to five administrative areas, including passports, family registries, and health insurance.
Fairer and Simpler Tax Administration
Under separate legislation, meanwhile, financial institutions will begin attaching My Number IDs to deposit accounts in 2018. Although depositors will not be legally required to provide their IDs to institutions at the outset, eventually all deposit accounts will have to be associated with a My Number ID. This is expected to become a potent tool for tax enforcement.
Once employers start making use of the ID numbers in January, tax administrators will have a simple means of tracing employment income subject to withholding tax. But business income is a different matter. The only way a national ID system could be used to keep tabs on sales by a sole proprietor, for example, would be to require customers to report all their purchases to tax authorities using the store’s identification number—hardly a practical solution. Nor are ID numbers particularly useful in preventing sole proprietors or independent contractors from evading taxes by claiming personal expenditures as business expenses. But the use of My Number to identify the holders of financial accounts should create a major deterrent to tax evasion by helping tax administrators trace deposits to their depositors.
From the standpoint of taxpayer convenience, the new system could also pave the way for easy tax filing with the aid of pre-filled tax forms. In Europe, this service is typically provided by tax agencies, which use the wage and withholding information reported by employers to fill in taxpayers’ tax forms and then send the forms to taxpayers for verification and correction as necessary. The scheme currently under study by Japanese authorities would make use of My Portal, which would store such information as wages, pension and health insurance premiums, and other deductible expenses and automatically transfer it to the appropriate tax forms for easy electronic filing.
Where healthcare is concerned, privacy concerns have sparked considerable opposition to the use of the ID numbers to track patients and medical information. However, not all healthcare information is privacy-sensitive. Unlike medical records, payment records raise relatively few privacy concerns, and linking them to My Number would greatly simplify their management for purposes of tax deductions. A mechanism for transmitting healthcare payment information to My Portal would greatly enhance the system’s usefulness to ordinary citizens.
Ticket to Economic Vitality
As the Japanese population ages and the productive population dwindles, the economy is groaning under the weight of rising healthcare and social security costs. One key to restoring the nation’s economic vitality under these conditions is the deployment of advanced information and communication technology at every level. In this context, the My Number system is much more than a means of tracking taxpayers and social security recipients. It is the portal to an efficient, vital, digital society.
By making use of all three components of this new social infrastructure—My Number IDs, personal number cards, and My Portal—citizens and residents of Japan will benefit first of all by more efficient delivery of government services at the national and local level, and later by the convenience of one-stop shopping combining a wide array of public- and private-sector services. This infrastructure will in turn open up a host of new business opportunities. We will need to pool our private and public expertise henceforth to ensure that the system functions safely and effectively and makes good on its promise of greater economic and social vitality.
(Originally written in Japanese and published on October 28, 2015. Banner photo: Sample design of a “personal number card,” to be issued to residents on request under the new My Number social security and tax identification system. Each photo ID, imprinted with the holder’s 12-digit number and incorporating advanced chip technology, could eventually take the place of separate health insurance and other cards. © Jiji.)
