Tourists to Japan have long enjoyed the pleasure of buying gifts for those back home – or for themselves – without paying the country’s consumption tax. But the system’s about to change slightly after some savvy shoppers found they could game it to their benefit.
Officials discuss duty-free changes
The Government Tax Commission will convene today with the Cabinet’s ruling parties, LDP and Komeito, to discuss changes to Japan’s consumption tax exemption system for foreign tourists’ duty-free store purchases.
Under the current system, purchases by foreign nationals at duty-free stores are exempt from consumption tax on the premise that they leave Japan unused. They also can’t be resold domestically.
However, in light of widespread illegal sales of duty-free purchases in 2022, government officials ramped up measures this May by levying businesses and foreign nationals for illegal resales of duty-free products. They’re now planning to revise the system itself.
Plans to refund tourists at departure
The Commission and Cabinet officials will go over the latest proposal to charge foreign tourists consumption tax at the time of purchase and later refund them the equivalent tax amount upon confirming the goods’ departure at airport customs.
European countries, Singapore, and Australia have already adopted this system of refunding the tax amount from duty-free purchases at the time of departure.
Japan’s system change will reportedly have finalized decisions within the year.
Why now?
The rush to halt abuses of the system comes after Japan computerized all related sales for the first time in October 2021. That produced a report finding 374 people who purchased over ¥1 billion ($680,020 USD) worth of duty-free products that year.
These big spenders raised officials’ suspicions of possible resales in Japan.
“Many high-value purchasers may be reselling the items domestically,” a government source said.
Customs officials and airlines launched an investigation into 57 of the 347 individuals, whose spending averaged ¥4.5 billion ($30,613,050 USD).
Customs cleared one person. The rest couldn’t account for their purchases, which confirmed the initial suspicions of illegal reselling.
Officials sent notices to the 56 individuals to pay consumption tax. At the time of writing only one person has reportedly complied.
That leaves 55 people in arrears for a total of ¥1.86 billion ($12,648,930 USD).
An organized crime
Brokers are reportedly recruiting tourists on chatroom apps as foot-soldiers to go and buy duty-free products for a fee. They hand their recruits the money for purchasing duty-free goods in mass. Then the brokers park big trucks next to the shops to transport loads of purchases for resale.
Legal experts say that authorities can charge both brokers and buyers for violating the consumption tax law. The crime is punishable by up to 10 years in prison or a fine of up to ¥10 million ($67,984 USD).
Companies are taking the blow for the people evading consumption tax.
In December 2022, authorities charged the Japanese subsidiary of U.S.-based Apple Inc. ¥14 billion in consumption tax. Tourists made mass purchases of iPhones and domestically resold them through retailers, violating the requirements of the duty-free program.
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Sources
[1] 訪日客の免税品、374人が１億円以上購入 転売か、制度見直し検討. 朝日新聞
[2] Japan considers tax changes to halt abuse of duty-free system. The Asahi Shimbun
[3] 免税品「大量購入」で転売か…国の調査 「あとで返金案」議論へ. 日テレNEWS NNN
