What is Japanese sales tax?
Japanese sales tax (shouhizei, 消費税) a.k.a. “consumption tax” is a value added tax generally applied to sales of goods or services by any business entity within Japan. The tax was first introduced in 1989 at a rate of 3%, increased to 5% in 1997 and increased again to 8% in 2014. The Japanese government originally slated the tax hike for 2015 but delayed implementation twice due to prevailing economic and political conditions. From 1st October 2019 the Japanese sales tax rate will become 10%.
Is sales tax charged on exports?
The sales tax applies to goods and services sold domestically in Japan. Sales to customers outside Japan are treated as export exemptions and are not subject to consumption tax.
Will different tax rates apply?
Daily necessities, such as food and drinks will be excluded from the 2% increase. The 8% rate continues to apply to groceries, takeaway food, delivery food and vending machine snacks/drinks.
Interestingly, newspaper subscriptions are also treated as “necessities” and are only taxed at 8% whereas newspapers purchased from a news kiosk or accessed online are taxed at 10%.
How will cashless transactions be affected?
Consumers will get a 5 percent rebate for purchases made at small establishments registered with the government’s cashless subsidy scheme whenever they use credit card, debit card or smartphone e-payments. The temporary scheme is planned to operate only until June 2020. Rebates may take the form of reward points or discounts, depending on the payment platform. The same rebate will be limited to 2 percent for purchases from large brand outlets, including convenience store franchises.
The goal of the Ministry of Economy Trade and Industry is to double Japan’s rate for cashless payments to 40 percent of all transactions by 2025 versus 20 percent in 2016.
Will duty-free purchases be affected?
Existing duty-free arrangements are unchanged by the new sales tax law. Tax exemptions are available on electric appliances, clothing, accessories, shoes, food, drinks, tobacco, medicines and cosmetics. To qualify for exemption the combined value of goods purchased from the same store on the same day must be at least ¥5,000 (pre-tax) but be no greater than ¥500,000.
Unlike other countries, in Japan the duty free exemption is not claimed at airports since it is handled at each individually licensed tax-free store. Therefore, a consumption tax exempt price is available at the time of purchase. Foreign shoppers need to show their passport to claim the duty-free discounted price.
What do I need to do?
If you have a shop or an online store in Japan you will need to make sure that you are charging the correct rate of tax from 1st October 2019. This may present some unusual problems if you offer food or beverages which could either be consumed on premises (10%) or taken away (8%). Also, if you are signing a contract for services which span the 1st October introduction, then you’ll need to examine what portion of the service is affected by the tax change. It would be advisable in all cases to check with your accountant to make sure that you are complying correctly.
If you have an online store in Japan that hasn’t been updated for a while or just needs a general “refresh”, now might be a good time to contact us to discuss your options. With next year certain to see a big influx of foreign visitors for the Tokyo Olympics, there has never been a better time to polish your brand image.
