Japan plans to change its consumption tax exemption system for tourists, replacing it with a refund-based approach. The change, expected as early as fiscal 2026, will require visitors to pay consumption tax at the time of purchase, with refunds processed upon departure.
Under the current system, tourists can purchase items tax-free by presenting their passports at duty-free stores. However, concerns about fraudulent practices, such as reselling tax-exempt goods within Japan, have prompted the government and ruling parties to propose the new system.
The refund process will involve customs inspections at departure points, such as airports, to confirm that the purchased items are taken out of Japan. Refunds will be issued either in cash or to a pre-registered credit card.
“The new system is expected to prevent resale or other fraudulent behaviour in Japan,” the government stated.
The proposed changes will also eliminate distinctions between “general” items, such as clothing, and “consumables,” like cosmetics and food. Currently, a ¥500,000 (approximately US$3,300) limit applies to consumables for tax exemptions. This cap, along with packaging rules, is expected to be removed to ease administrative burdens on duty-free stores.
The ruling parties’ tax commissions aim to finalise the system’s details in their fiscal 2025 tax reform guidelines by the end of 2024. Following the enactment of related legislation, the government will prepare the management system needed for duty-free sales under the new framework.
The current system faces scrutiny for allowing loopholes. In fiscal 2022, a customs survey found that only 15.2% of duty-free purchases exceeding ¥100 million (US$660,000) could be verified as being taken out of the country. Most violators left without paying the required tax.
This reform aligns Japan with tax refund practices in Europe and other regions, ensuring greater oversight while maintaining convenience for visitors.
AloJapan.com