TOKYO – In a bid to curb the escalating problem of tax-free items being resold overseas at inflated prices, Japan is contemplating a major restructuring of its tax-free shopping scheme for foreign visitors, according to sources familiar with the matter. The current system allows visitors staying in Japan for less than six months to purchase goods with the consumption tax already deducted. However, authorities are now exploring the possibility of transitioning to a new approach where visitors pay tax-inclusive prices and subsequently apply for refunds, the sources revealed.
Potential Changes on the Horizon
Discussions surrounding the revision of Japan’s tax-free shopping rule are expected to commence later this year, as part of the annual tax system review for fiscal 2024, the sources added. Drawing inspiration from practices in the European Union, where tourists pay prices inclusive of value-added tax and later claim refunds after meeting the required formalities, Japan aims to address the growing issue of tax-free items being resold for profit.
Existing Tax-Free Shopping Conditions
Under the current guidelines, travelers are exempted from paying consumption tax on purchases totaling 5,000 yen or more, as long as they have genuine intentions of using the items in their home countries. However, recent incidents have revealed instances of travelers buying substantial quantities of tax-free items with the intent of reselling them elsewhere, the sources stated.
Previous Cases and Measures
Highlighting the gravity of the situation, it was revealed that Apple Inc’s Japan branch faced an additional tax bill of 14 billion yen last year after authorities discovered bulk sales of iPhones and other products to foreign visitors suspected of engaging in resale activities without charging them the appropriate consumption tax.
Effective Enforcement and Collection Challenges
To tackle the issue at its root, tax-free store purchasing records are now shared with customs authorities, who collect the consumption tax from travelers who fail to present the tax-free items they purchased upon departure. However, the Finance Ministry has expressed the difficulty of recovering the tax owed from such travelers, primarily due to their lack of financial means at the time of departure.
Government Crackdown and Mitigation Measures
In an effort to combat illicit tax-free purchases, the government has intensified its efforts by imposing a requirement, effective May, that businesses purchasing tax-free items for resale purposes must pay the consumption tax. These measures aim to discourage unlawful resale practices and restore fairness to the tax-free shopping system.
As Japan grapples with an increasing number of cases involving the unauthorized reselling of tax-free goods, authorities are exploring a potential overhaul of the current tax-free shopping scheme. By shifting towards a system where visitors pay tax-inclusive prices and subsequently apply for refunds, the government hopes to tackle the issue head-on and protect the integrity of the tax-free shopping experience for legitimate travelers.
Article sourced from KYODO news agency