Japan’s easy foreign tourist tax exemptions may be getting harder in order to stop fraud, resales

Skipping tax payments by showing your passport may become a thing of the past as government finds billions of yen have been improperly waived.

International travelers in Japan can find some very impressive bargains, and not just because of a favorable exchange rate while the value of the yen is at historically low levels. Foreign tourists in Japan can also take advantage of the menzei, or sales tax exemption, system.

Basically, whenever someone buys something in Japan, there’s a 10-percent tax. There are a few exceptions for things like groceries, but in general, it’s 10 percent. So for example, if our ace reporter Mr. Sato goes to Uniqlo to buy four of their new Pokémon T-shirts, priced at 1,500 yen each, he’d actually have to pay a total of 6,600 yen, 6,000 for the shirts and 600 yen in tax.

However, if a foreign tourist goes to Uniqlo and buys those same four shirts? Their total comes to just 6,000 yen. That’s because the 10 percent tax isn’t technically a sales tax, it’s a consumption tax, and the law says that it can be waived for foreign visitors who will be consuming/using the items outside Japan, as long as their purchase total comes to more than 5,000 yen (approximately US$33).

▼ It’s like a 10-percent-off sale for every store in the country!

Japan isn’t totally unique in this, as there are similar tax exemption systems for international travelers in other countries as well. However, Japan’s system is rather lenient. In many countries, foreign shoppers are required to pay the full tax-inclusive for-locals price at the retailer. Then, before flying home, they have to present their receipts to customs officials at the airport and show that they really are taking the items out of the country, at which point they will become entitled to a refund equal to the amount of tax they paid.

In Japan, though, the whole process is much simpler for the shopper. All foreign tourists have to do is present their passport at the retailer when making their initial purpose, and the retailer will simply waive the tax payment then and there. Instead of being eligible for a refund that has to be processed at the airport, the foreign shopper simply never pays the tax in the first place. Retailers are required to make a record of the waiver and submit the documentation to the government, but from their perspective, there’s minimal hassle.

However, that might be changing. Japanese news organization Jiji reports that the Japanese government is strongly considering a comprehensive overhaul of the tax exemption system. By providing the economic benefit (i.e. the exemption) to foreign shoppers before confirming that they’re taking the items out of the country, the current system leaves the door open for people plotting to resell the items within Japan.

▼ “As I fly home, I’ve left a part of my heart, and a whole lot of stuff I bought, in Japan.”

A lack of confirmation that goods purchased tax-free are leaving Japan is also at the heart of a scandal involving Takashimaya, one of Japan’s largest department store chains. Earlier this month, the Osaka Regional Tax Bureau ordered Takashimaya (which is headquartered in Osaka) to pay an additional 570 million yen in taxes following an investigation of a two-year period leading up to February of 2022. Despite inbound travel to Japan being highly restricted due to the coronavirus pandemic, Takashimaya branches continued to sell sizeable quantities of items such as luxury watches and cosmetics that were reported as tax-exempt because the buyers were foreign tourists. The investigation determined that many of these buyers were actually foreign residents of Japan (who are not eligible for tax exemptions) who were able to obtain the exemptions based on their non-Japanese passports. Had they been required to pay the tax at the time of purchase and apply for a refund at the airport, the transgression could have been prevented, since they weren’t leaving the country.

Takashimaya isn’t the only retailer to have been found waiving taxes when they shouldn’t have, as recent investigations also discovered improper exemptions for foreign shoppers at the Mitsukoshi/Isetan and Kintetsu department store chains, as well as cosmetics-focused drugstore Matsumoto Kiyoshi, which have been ordered to pay an additional approximate 700 million, 800 million and 1.4 billion yen in taxes.

Jiji’s report says that the proposal for the tax exemption system revision is likely to be included as part of the upcoming 2025 tax reform framework, with exact details such as when the exemption system changeover would occur. If it does happen, you’ll probably want to give yourself a little extra time at the airport on the day you fly home to handle any tax refund processing you’ll need to do, but at least you can probably pick up some great snacks too while you’re there.

Source: Jiji via Hachima Kiko, Asahi Shimbun, NHK News Web
Top image: Pakutaso
Insert images: Pakutaso (1, 2)
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