Japan is planning significant changes to its duty-free shopping system to prevent exploitation. The Japan Airport Tax Refund Program is being introduced to ensure tourists can still enjoy tax-free shopping without fraudulent activities. Currently, tourists shopping at special duty-free stores do not pay consumption tax.
However, some individuals have abused this system by buying items and reselling them within Japan. To address this, the Japanese government is considering a new approach. They propose that tourists pay consumption tax at the time of purchase and receive a refund upon confirming their purchases before leaving the country.
These changes aim to curb the improper resale of goods. The government plans to implement these measures in fiscal year 2025 or later, allowing time for department stores and shops to prepare for the new system.
In Japan, foreign tourists are exempt from paying consumption tax on purchased items. This exemption applies when tourists take the items out of the country as personal souvenirs during stays of less than six months. However, the exemption does not apply if someone plans to sell the items bought in Japan back in the country.
To ensure compliance with these rules, duty-free shops are required to verify that buyers are not residents and must explain the conditions for tax-free sales. Duty-free shops must also keep records of purchases. Failure to detect purchases intended for improper resale may result in the shop paying the unpaid consumption tax.
The need for change is evident, as highlighted by cases such as Apple Japan’s extra tax payment due to transactions not meeting tax-free purchase requirements. A survey by Japan’s National Tax Agency revealed that 24,000 companies did not report consumption tax between July 2021 and June 2022, leading to a 20% increase in overdue taxes compared to the previous year.
The Japan Airport Tax Refund Program revision is a response to increased scrutiny, especially after implementing a computerized sales tracking system in October 2021. This system identified anomalies in duty-free purchases exceeding ¥1 billion ($680,020) for 374 individuals, raising suspicions of domestic resale. Investigations into 57 individuals with spending averaging ¥4.5 billion ($30,613,050) ensued, with only one person complying with consumption tax payment notices, leaving 55 individuals owing a total of ¥1.86 billion ($12,648,930).
The abuse of the duty-free system has taken an organized crime turn, with brokers recruiting tourists on chatroom apps to make duty-free purchases for a fee. These tourists, acting as foot soldiers, purchase duty-free goods using provided funds, which are subsequently domestically resold by retailers.
Violation of the consumption tax law can result in up to 10 years in prison and a fine of up to ¥10 million ($67,984). Companies, like Apple Japan, bear the brunt of these charges, exemplified by the ¥14 billion consumption tax imposed due to tourists’ mass purchases of iPhones.
To fully enjoy shopping in Japan, tourists must be aware of the country’s tax exemption program. This program covers a range of items, including general goods like home appliances, accessories, and shoes, as well as consumables such as alcohol, food, cosmetics, cigarettes, and medicines. Tax exemptions have specific conditions, with reduced tax rates applicable to certain items.
The Japan Airport Tax Refund Program benefits foreign visitors staying in Japan temporarily, particularly those with stays of less than six months. In addition to in-person tax refund procedures, Japan allows the shipping of tax-exempt items purchased, even to overseas destinations. This convenience enhances the appeal of Japan’s tax exemption program for international visitors.
The government provides online resources with detailed information on tax rates and refund procedures to assist tourists. Japan is leading in revamping its Japan Airport Tax Refund system to protect the economy from misuse while enhancing the experience for legitimate tourists. By adopting global practices and enforcing stricter measures, Japan aims to maintain its premier travel destination status, creating a fraud-free shopping environment and enhancing the overall experience for travelers.