Japan tackles foreign tourists' tax-free fraud

Currently, foreign tourists in Japan are entitled to deduct consumption tax when purchasing goods at duty-free shops and special sales counters. However, some people take advantage of this policy to buy and resell products within Japan.

According to the Nikkei Asia newspaper on November 25, under the new regulations, international tourists will have to pay consumption tax on products when purchasing in Japan, then get a tax refund when they leave the country and the purchase is confirmed. This is a common practice in many other countries.

The new approach would likely take effect in fiscal 2025 or later as shopping malls and other retail establishments would need time to prepare to comply with the policy change.

Nhật Bản xem xét sửa đổi chính sách mua hàng miễn thuế để chống gian lận - Ảnh 1. — Pedestrians in front of a duty-free shop in Tokyo, Japan

According to Nikkei Asia , Japanese law exempts foreign tourists from paying consumption tax if they stay in the country for less than six months, and only applies to items that will be taken abroad as personal souvenirs. Items that are resold in Japan are not subject to the tax exemption policy.

Duty-free shops must check whether buyers are non-residents, explain to them the conditions relating to duty-free purchases and keep records of purchases.

If duty-free purchases are made for unauthorized resale, stores will have to pay the sales tax that was previously exempted for tourists.

Last December, Apple Japan (Apple's subsidiary in Japan) was reportedly investigated by tax authorities and asked to pay an additional 13 billion yen ($87 million at current exchange rates) in consumption tax for a period of two years, up to September 2021.

Apple Japan appears to have been notified that it is not detecting many purchases of iPhones and other products that do not meet the tax-free purchase conditions.

A survey conducted by the National Tax Agency of Japan from July 2021 to June 2022 found 24,000 cases of companies failing to file consumption tax returns. The total amount of tax collected for that period was 86.9 billion yen, up 20% from a year earlier.

Japan now has about 53,000 duty-free shops, a tenfold increase from 2013. Tourism to Japan is recovering as the yen weakens and the government relaxes immigration restrictions. Many are calling for Japan to change its tax-free process to a refund process that is common around the world.

Government officials have informed the ruling Liberal Democratic Party (LDP) and its coalition partner Komeito of the proposed changes. The ruling coalition will discuss the proposed changes in a tax reform outline to be released next month.

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