An association affiliated with the posts ministry hid about 420 million yen in income over two years, sources said Thursday.

The Foundation for the Policyholders of Postal Office Life Insurance in Minato Ward, Tokyo, failed to declare 1.85 billion yen, including the hidden amount, for the 2000 and 2001 fiscal years, the sources said.

The National Tax Agency ordered it to pay 480 million yen in unpaid taxes and punitive surcharges, they said.

The agency also decided to terminate the tax-free treatment the association enjoys on part of its income, the sources said.

The association said it will pay the taxes but will call on an agency tax tribunal to re-examine the case because it is unhappy with the authorities’ decision.

The association, affiliated with the Public Management, Home Affairs, Posts and Telecommunications Ministry, has been receiving 1.7 percent service commissions for collecting insurance premiums from group policyholders who are subject to group discounts.

Tax authorities have exempted the collection operation as a nonprofit activity because the association has promised to refund commission income, excluding necessary expenditures, to the policyholders. This amounts to about 2 billion yen every year.

But the association was actually using part of the commissions for its employees’ taxable entertainment expenses, the sources said.

The association also made its surplus commission income appear to be smaller than it really was by booking fictitious unpaid consumption tax, they added.

About half of the association’s employees are former posts ministry officials. Its commission income totaled 31.79 billion yen in fiscal 2001, according to a financial report.

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