Japanese Consumption Tax (VAT)

Poste date: Friday, November 29, 2019

In Japan, the current consumption tax was raised to 10% starting October 2019. In this article, we cover the following aspects regarding Japanese Consumption Tax.

Consumption Tax in Japan and How it’s Displayed in Shops

The Consumption Tax in Japan (also known as VAT, GST or sales tax in some countries) is 10% for all items excluding groceries, drinks, and newspaper subscriptions which are 8%.
(alcoholic drinks and ordering food at a restaurant for eating out are 10%).

Some shops display prices excluding tax with a Japanese word meaning “excluding-tax”. For example, if you see a display “¥1,000(税抜)”, it means that the consumption tax will be added later at the cash register. If it’s displayed “¥1,000(税抜)”, the price includes tax therefore you pay exactly ¥1,000 at the cashier.

1,000円(税抜: Zei-nuki: Excluding-tax)
1,000円(税込: Zei-komi: Including tax)

Please refer to our article “Japan Consumption Tax Hike 2019: How it Will Affect You” for more details.

The History of Japanese Consumption Tax

Back in April 1989, consumption tax was introduced by the Japanese government and was initially 3%. It was the peak of the bubble economy and the reason of the introduction of the consumption tax was to finance social welfare spending.

In 1997, the tax was raised to 5% and in 2014 it was increased to 8%. In October of 2019, consumption tax was raised to the current rate of 10%. Until the end of July 2020, Japanese government will be running a campaign called “Consumption Tax Reward Point Program for Cashless Payments”. Please read further in our article “Consumption Tax Reward Point Program for Cashless Payments”.

Who is Eligible to do Tax free Shopping (Consumption Tax Refund)

The tax exemption system (Tax Free Shopping) only applies to foreign tourists visiting Japan. To qualify your stay in Japan has to be less than 6 months and you cannot currently work in Japan (non-resident). Japanese who live abroad and are staying in Japan for less than 6 months can also enjoy tax-free shopping.

People Who are NOT Exempt from Consumption Tax in Japan

1. People who are staying in Japan for longer than 6 months

2. People who work in Japan

3. When the date of entering Japan is not stamped on the passport (e.g. when using an automated gate at the airport)

Japan Tax-Free Shopping Guide

In order to do some Tax Free shopping in Japan, you will first have to find a shop displaying the logo above. To qualify for tax free shopping you will be to make a purchase of at least ¥5,000. After going through the procedure, the consumption tax you have paid will be refunded on the spot. Please make sure that you carry your passport if you would like to benifit from tax-free shopping.

There are two categories for items; General items and Consumable items. There are different rules apply to each category. Please read the Guide from Japan National Tourism Organization for further details.

Image from JNTO

Consumption Tax Exemptions for Foreign Embassies, Diplomats etc.

Consumption tax exemptions are applicable to embassies, diplomatic and consular offices, ambassadors and consular agents etc. which/who obtain a “Tax-Free Card” issued by the Ministry of Foreign Affairs Secretariat.

It’s necessary to provide the “Tax-Free Card” and ID at the store. The minimum purchase amount is mentioned in the Tax-Free Card.

Non-Taxable Transactions in Japan

Among the many tax systems, consumption tax is the most familiar type of tax for everyone regardless their age. While it may seem like you pay consumption tax everywhere, there are in fact some transactions that are non-taxable. Here are examples.

Non-Taxable Transactions

  • - Sale or Rental/Lease of Land
  • - Housing Rental to an Individual (also Key Money, Deposit, Management Fee, Renewal Fee)
  • * Brokerage fee (Agent Fee), Renewal commission and Rental for a Corporation are taxable
  • - Interest, Loans, Guarantee Fee
  • - Insurance Premium, Social Insurance
  • - Postage Stamps, Revenue Stamps, Prepaid Cards, Gift Certificates
  • - School Tuition, Admission Fees, Textbooks (*reference books and drills are taxable)
  • - Medical Treatment Under Public Medical Insurance laws
  • - Cancellation Fee, Penalty, Damage Compensation
  • etc.

For exact details, please refer to the page below from National Tax Agency (Japanese)
https://www.nta.go.jp/taxes/shiraberu/taxanswer/shohi/6201.htm

For your Reference

Outline of Consumption Tax

Japan’s Consumption Tax (Japan National Tourism Organization)