Japan considers revising tax exemption system for foreigners… ‘Tax exemption’ only upon actual verification upon departure

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Duty-free goods purchased in bulk are resold in Japan… Collecting taxes is not easy
Consumption tax is imposed when purchasing duty-free goods… You can get a refund if you show your duty-free items when leaving the country.

The Asahi Shimbun reported on the 29th that the Japanese government is considering revamping the system to impose a consumption tax on product purchases and provide refunds after checking the products upon leaving the country in order to prevent abuse of the tax exemption system for foreigners.

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Under Japan’s foreigner duty-free system, souvenirs purchased at duty-free shops are exempt from consumption tax when taken overseas. Domestic consumption or resale is not permitted.

Japan’s duty-free sales process became fully electronic in October 2021. Based on this data, the Japanese government investigated the amount of duty-free goods purchased by people leaving the country in 2022, and found that 51,726 people spent 1 million to 10 million yen (about 9 million to 90 million won), and 10 million to 100 million yen (about 90 million to 90 million won). There were 1,838 people earning 100 million won (about 900 million won) and 374 people earning more than 100 million yen (about 900 million won).

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Among foreigners visiting Japan (inbound) in 2022, the total purchase amount of those who purchased duty-free goods worth more than 100 million yen reached 170.4 billion yen (about 1.5 trillion won), and the average per person was calculated to be 450 million yen (about 4 billion won).

The number of people who purchased duty-free goods worth more than 100 million yen reached 374 last year, but it appears that many of them may be reselling products purchased at duty-free shops within Japan.

Japanese customs authorities, in partnership with airlines, conducted inspections on 57 of those who purchased more than 100 million yen. As a result, only one person was able to confirm that duty-free goods had been taken out, while many were unable to confirm the duty-free goods they had purchased. A Japanese government official said, “Aren’t many of the high-ticket buyers reselling within the country?”

A decision was made to impose consumption tax on 56 people who had committed corruption, but only one person paid it. The remaining 55 people owe a total of 1.85 billion yen (about 16.2 billion won) in arrears. Initially, buyers of duty-free goods had to present their passports to customs when leaving the country, but Asahi reported that many of them are leaving the country after passing through customs inspection, and because the inspections are carried out arbitrarily, they cannot be prevented from leaving the country.

To this end, the Japanese government has decided to review a system that refunds the equivalent amount of consumption tax only if it can be confirmed that the purchase was taken out of the country upon departure after taxation at a duty-free shop.

This system has already been introduced in many countries, including Europe. The Japanese government aims to introduce the system starting in 2025 after examining the tasks needed to implement the system next year.

The Japanese government also plans to discuss introducing a system at the end of this year that will not allow input tax credits, which deduct the consumption tax of the purchase, for buyers who purchase goods knowing that they are tax-free. This is because there is a possibility that buyers and purchasers of duty-free goods may combine and resell them.

Previously, in December last year, Apple Japan (Apple Japan) was fined about 14 billion yen in consumption tax related to tax-free sales of iPhones and other products. It has been reported that transactions that did not meet the tax exemption requirements have been confirmed, such as a case where a customer visiting Japan is believed to have purchased a large quantity of terminals and resold them overseas through a company.

Source: Donga

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