News With duty-free sales soaring Japan looks at overhauling tax-free system

Japanese department stores saw a record high of duty-free sales in October, thanks to the return of foreign tourists and a weak yen. The sales were 2.8 times higher than the same month last year, reaching 38.3 billion JPY (USD 258 million). Luxury items and personal goods were trendy among visitors from China, South Korea and Southeast Asia. The overall sales of department stores also increased for the 20th consecutive month, rising 6.1% year-on-year. The strong performance continued in November, and the department store association expects it to last until the end of the year.

Ever-increasing tax-free purchases, however, have also resulted in soaring abuse of duty-free reimbursements. The Japanese government is now considering overhauling how tourists make tax-free purchases: the consumption tax is currently deducted when purchasing items at special duty-free stores and sales counters. However, some people abuse the system and resell products within the country.

Under the new rules, tourists would pay the consumption tax for products upon purchase, then receive a tax refund when they depart the country and the purchases are confirmed. This is the typical practice in other countries. The new approach will likely go into effect in fiscal 2025 or later because department stores and other retailers need time to prepare to comply with the changes. Japanese law exempts foreign tourists from paying the consumption tax for products if the visitors stay in the country for less than six months and only applies to items taken out of the country as personal souvenirs. Items to be resold in Japan do not qualify for tax-free sales. Stores that make duty-free sales must check that the purchasers are non-residents, explain the conditions governing tax-free sales and maintain purchase records.

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Stores that fail to recognize tax-free purchases done for improper resales are required to foot the bill for the unpaid consumption tax. Last December, Apple's Tokyo-based subsidiary, Apple Japan, was reportedly probed by tax authorities and ordered to pay an additional consumption tax of 13 billion JPY (USD 87 million at current rates) over two years through September 2021.


Paywall alert:

A lot of rules but then a lot of grey areas - and that makes people take undue advantages.

However, I am not sure about the effect of the cost of having this system - additional resources, queue time, and all. But yes, there has to be a check. If I remember well, in Hawaii, we had to pick up the bough duty-free items at the airport. The duty-free payment was made at the store, but had to collect it from the airport. The additional cost in such cases goes to the seller.

HJain said:

A lot of rules but then a lot of grey areas - and that makes people take undue advantages.

However, I am not sure about the effect of the cost of having this system - additional resources, queue time, and all. But yes, there has to be a check. If I remember well, in Hawaii, we had to pick up the bough duty-free items at the airport. The duty-free payment was made at the store, but had to collect it from the airport. The additional cost in such cases goes to the seller.

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In most European countries, you collect your VAT at the airport. You're also required to produce the purchased items upon inspection. Frankly, the Japanese system in place invited abuse.

Frankly I would probably not bother with the duty-free purchases if this goes into effect. I don't want to unpack bags at the airport and then unwrap the items themselves. You never know the level of "diligence" that an inspector might use after all. I have never abused the system and have actually rarely used it as the purchases have to be over 5000 JPY anyway and very few of my purchases are.

thomas said:

You're also required to produce the purchased items upon inspection. Frankly, the Japanese system in place invited abuse.

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I'm guessing this is probably true in Japan too isn't it? They may not actually inspect much but the threat is there.