23-5-2023 (Tokyo) Japan Considers Reforms to Tax-Free Shopping Program for Foreign Visitors
Japan is contemplating a major revamp of its tax-free shopping program for foreign visitors in response to a rising number of instances where tax-free items are being resold overseas at prices that include taxes, sources familiar with the matter revealed on Monday.
Under the current system, visitors staying in Japan for less than six months can purchase goods with the consumption tax already deducted. However, the government is now exploring the possibility of transitioning to a program where visitors pay prices that include taxes and then apply for refunds afterward, according to the sources.
Official discussions regarding the tax-free shopping rule are expected to commence later this year during the annual tax system review for fiscal year 2024, the sources added.
In the European Union, for example, tourists pay prices that include value-added tax and then seek refunds after fulfilling the required procedures.
In Japan, travelers are exempt from paying the consumption tax when they buy merchandise worth ¥5,000 ($36) or more, as long as they plan to use the items outside the country.
However, there have been instances where travelers have purchased large quantities of tax-free items with the intention of reselling them, noted the sources.
Last year, Apple’s Japan branch faced additional taxes amounting to ¥14 billion after authorities discovered that the company had sold iPhones and other products in bulk without charging consumption tax to foreign visitors suspected of buying the items for resale purposes.
Purchase records at tax-free stores are shared with customs officials, and consumption tax is collected from travelers who fail to present the tax-free items they bought upon departure.
According to the Ministry of Finance, it is often challenging to collect the tax from such travelers because they frequently lack the necessary funds to make the payment when leaving the country.
To combat illicit tax-free purchases, the government has intensified its efforts by introducing a requirement in May that businesses purchasing tax-free items for resale purposes must pay the consumption tax.
