Value-Added Tax in Japan

CT in Japan

In Japan, Consumption tax (CT) is parallel to value-added tax (VAT) or general sales tax (GST); sometimes also referred to as “JCT”.i.e. Japanese consumption tax. In general, all sales, services, and provision of almost all goods are obliged to CT. The tax is charged on sales of business entities.

Tax Reforms in Japan

By October 1, 2019, standard tax was raised till 10% (7.8% in national and 2.2% locally), previously 8% (6.24% in national and 1.7% locally). However, still, reduce 8% tax rates are applied on some products like basic food items (excluding dine outs and liquors) and newspaper subscriptions (published twice or more in a week) and 0% tax rates are applied for non-native when it comes to export or specific services.

Similarly, in Japan taxation is not applied when selling or leasing of land, sales of securities and provision of public services.

The CT is also applicable to digital services like (e-books, music, ads, etc) as they are cross-body provision. For this, a reversal charging method is followed by business-to-business (B2B) transactions but foreign service providers need to be registered for CT with respect to business-to-consumer (B2C) transactions.

Similarly, if sports or music/art provided by foreign providers inside Japan, then Japanese sponsors are obliged to attain a reverse-change system.

New Invoice System

A new “invoice system” will be launched by 1 April 2023 to respond to several tax rates. In an intermediary time frame to introduce a new system, several measures will be taken place. As far as this new system will launch, all taxation will be held by existing ways and reduce tax rates on certain items to be maintained in an invoice which needed to be secure to publish later on.

In other words, within 3-4 years, until the new invoice system will be initiated, the simplified transitional method will be implemented which is a separate accounting invoice based method along with special steps are taken for calculation of tax amount.

Tax Ranges From 8% to 10% Rates

The current multiple tax rates which range from 8% – 10% on different food items, services, and goods created complexity for several operators to adjust because of dual rates. The difference in rates can be described as:-

* 10% tax rates will be charged on dining out at a restaurant.

* But 8% tax rates will be applied on taking aways means people buy their food and take it to go.

* 10% tax rates applied to alcoholic drinks and beverages.

* 10% tax charges are applied on railway tickets and train services.

Different opinions are found among people in Japan on tax rates. The sources claim that hike tax rates add 4.6 trillion yen to the annual revenue of the country. The government also introduced, 5% reward program for cashless transactions to corresponding raised tax level but it is observed that due to reward programs and precautions to avoid tax may decrease last-minute consumer. Still, there is a hope that 10% tax rates aided the in future.