Japan considers major changes to tax-free shopping program amidst concerns over resale of tax-exempt goods


23rd May 2023 – (Tokyo) Japan is considering a major overhaul of its tax-free shopping program for foreign visitors in response to growing concerns over the resale of tax-exempt goods for profit at tax-inclusive prices. The government is considering shifting from a system in which visitors pay prices with consumption tax already deducted to one where they pay tax-inclusive prices and apply for refunds afterward. Formal discussions on the tax-free shopping program may begin later this year during the annual tax system review for fiscal 2024.

Currently, visitors who stay in Japan for less than six months can purchase merchandise with the consumption tax already deducted. They are exempted from paying the consumption tax when purchasing goods totalling ¥5,000 (US$36) or more, as long as they intend to use the items in their home countries. However, there have been cases where travellers purchased large amounts of tax-free items for resale purposes, prompting the government to consider revising the system.

Last year, Apple‘s Japan branch was ordered to pay ¥14 billion in additional taxes after authorities discovered that it sold iPhones and other items in bulk without charging consumption tax to foreign visitors suspected of purchasing the products for resale purposes. Purchasing records at tax-free stores are shared with customs, and the consumption tax is collected from travellers who do not carry tax-free items they bought with them at the time of departure. However, according to the Finance Ministry, it is often difficult to collect the tax from such travellers because they frequently do not have the money to make the payment when departing the country.

The government has been ramping up efforts to prevent illicit tax-free purchases. From May, businesses that have purchased tax-free items for resale purposes were required to pay the consumption tax. Nonetheless, the government sees the need for more significant changes to the tax-free shopping program to address the problem of resale.

One proposal being considered is a system where visitors pay tax-inclusive prices and then apply for refunds afterward. This system would be similar to the one used in the European Union, where tourists pay prices that include value-added tax and get a refund after complying with the required formalities. There is also talk of setting stricter limits on the number of tax-free items visitors can purchase to curb the resale of goods.

However, the proposed changes have triggered concerns in the retail and tourism industries. Some stakeholders worry that the new system could discourage tourists from shopping in Japan and hurt the tourism industry. Retailers and tour operators fear that the proposed changes could inconvenience tourists and reduce their willingness to shop in Japan.