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The government and the ruling parties are considering reviewing the consumption tax exemption system because some foreign visitors are abusing the scheme and reselling tax-free items. Measures to stop this unjust practice must be implemented as soon as possible.
Visitors to Japan who have been in Japan for less than six months can buy souvenirs and goods for their own use at tax-free stores for a price that excludes consumption tax if they show their passports.
If a tax-free item is resold in Japan for a price that includes the consumption tax portion, the reseller makes a profit equal to the amount of consumption tax. To prevent this from happening, it is not permitted to resell tax-free items in Japan. If possession of tax-free goods or proof of their being shipped overseas cannot be confirmed at the time of departure, the buyer must pay consumption tax.
However, fraud is said to be rampant under the current circumstances, and the situation cannot be left unchecked.
Purchasers of tax-free goods are required to present their passports and purchased tax-free goods at customs when leaving Japan, but this is a voluntary measure and many visitors leave without complying.
It is therefore impossible for the authorities to know whether visitors did not purchase tax-free items or resold them after purchase.
Procedures at tax-free shops became fully computerized in October 2021, and passport information and purchase records are now sent to the National Tax Agency.
According to a tally based on this data, 374 visitors purchased tax-free items worth ¥100 million or more in fiscal 2022. Many of these purchases, which included luxury brand bags, accessories and watches, are suspected of having been resold in Japan.
Customs authorities, with cooperation from airline companies, identified and inspected 57 individuals who had purchased tax-free items worth ¥100 million or more by the time of their departure from Japan in fiscal 2022, and confirmed that only one person actually took tax-free items out of Japan.
Customs requested the other 56 people to pay consumption tax, but only one complied, while 55 refused to pay and left the country. Under the current regulations, people cannot be stopped from leaving the country, and a total of ¥1.85 billion is in arrears.
Even though cases may be limited in number, it is an unacceptable practice.
The government and the ruling parties are planning to introduce a tax-free system in which visitors to Japan purchase items at prices that include consumption tax, with the consumption tax portion being refunded at the airport or other locations upon departure from the country. They reportedly plan to introduce the new system in fiscal 2025 at the earliest.
Similar schemes are widely used in European countries and South Korea, among other nations. Under such systems, a seller cannot profit from reselling items for which consumption tax was paid, thus preventing fraudulent acts.
Securing personnel and space at airports will be an issue, however. Overseas, long lines of people waiting for refunds have occasionally been reported. Adequate preparations must be taken to ensure the system is introduced smoothly.
