November 28, 2024
TOKYO – The government and ruling parties intend to change the consumption tax exemption system applicable to tourists visiting Japan to a “refund system” in which they purchase items at prices that include consumption tax, with the consumption tax amount being refunded upon departure from the country.
Coordination for the change has been made among the government and ruling parties. They plan to introduce the refund system as early as fiscal 2026.
The introduction of the new system is eyed because under the current system, tax is waived at the time of purchase in Japan, and it has been said that there is rampant fraudulent behavior, such as the domestic resale of such items afterward.
Consideration will also be given to improving convenience for visitors to Japan, through such means as eliminating the maximum amount of cosmetics, food and other consumable items that are eligible for tax exemption.
The ruling parties’ research commissions on the tax system will work out the details and include them in their fiscal 2025 tax reform guidelines to be compiled at the end of this year.
Under the refund system, visitors to Japan would pay the full amount including consumption tax when they purchase items at tax-free stores in Japan. After that, upon departure from the country, the purchases will be checked by customs at airports and other locations to confirm that the items are taken out of the country. It is envisioned that the refund will be made either in the form of cash or to a credit card registered in advance.
This is a common system in European countries and elsewhere. Unless the purchased items are confirmed to be taken out of Japan, they will not be exempted from tax, which is expected to help prevent resale or other fraudulent behavior in Japan.
The current system divides duty-free items into two categories: “general” items such as clothing and “consumable” ones such as cosmetics and food. The government and ruling parties are considering abolishing these categories and the ¥500,000 upper limit on purchases of consumables. In consideration of the administrative burden on duty-free shops, they also intend to abolish rules on using special tape or other means to indicate whether a package has been opened.
The government aims to launch the new system as early as fiscal 2026, after the ruling parties include it in their tax reform guidelines and related bills are enacted, and the management system for duty-free sales is modified, among other steps.
Under the current system, visitors to Japan can purchase items at a price excluding consumption tax if they stay in Japan for less than six months and present their passports or other documents at duty-free stores.
However, it has been said that there is rampant fraud in which visitors resell purchased items during their stay in Japan to earn a profit equal to the amount of consumption tax.
According to a survey by customs authorities, of the 374 people who purchased duty-free items worth ¥100 million or more and left Japan in fiscal 2022, customs officials were able to identify and inspect the purchases made by only 57 people, or 15.2%.
Of the 57 inspected, 56 could not be confirmed to have taken their tax-free items out of the country and were required to pay consumption tax, but 55 left the country without paying it. The taxes that left unpaid totaled ¥1.85 billion.