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Sunday, Jun 23, 2024

Japan seeks to plug tax-free shopping loophole

Japan is considering revamping its tax-free shopping program for foreign visitors including Hongkongers to plug a major loophole in the illicit resale of tax-free items overseas for profit.
Reports are that government officials are set to start discussions on the rule this year during an annual tax system review for the 2024 fiscal year.

Travelers are presently exempted from paying a consumption tax for purchases of at least 5,000 yen (HK$283) if they intend to use the items in their home countries.

But officials have spotted an increasing number of cases of travelers purchasing massive quantities of tax-free items and reselling them at tax-inclusive prices.

Japan's finance ministry said the total value of goods subject to taxation last year worth about 2.2 billion yen involved 366 departing foreign visitors.

But over 90 percent of the tax was not collected as many travelers claimed they could not afford the payment when they were departing the country.

Japan's Yomiuri Shimbun reported last week that a Taiwanese couple purchased about 470 million-yen worth of luxury goods and tax-free cosmetics, but the purchases were not with them at the time of their departure.

They claimed that the goods had been sent by international mail, but customs officers found a mismatch between the postal invoice receipt and the purchase record and decided to levy a consumption tax totaling 47 million yen.

Yet the couple left the country without making the payment.

The government has ramped up efforts to prevent illicit tax-free purchases from this month, and businesses that have purchased tax-free items for resale purposes are required to repay the consumption tax.

It was understood the Japanese government could make foreign travelers to first pay the 10 percent consumption tax and only make a tax refund to those eligible for the tax-free shopping.

But people in Japan's retail and tourism sectors worry that the proposal may hinder tourists' interest in making any purchases in the country or that there will be a new burden at airports handling tourists' tax refund requests.

Meanwhile, travel agency EGL Tours' executive director Steve Huen Kwok-chuen said it is inevitable the potential amendment to the tax-free shopping rule will weigh on tourists as the procedure is complicated.

But he expects the rule will have a limited effect on Hongkongers shopping in Japan.

"A lot of countries such as Europe and South Korea adopt the policy of refunding tax at airports," Huen said.

He added tourists will continue to go to Japan as long as they think prices are cheap, so the main affect will be on those who abuse the current system.

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