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Japan stalls on Consumption Tax on digital services to consumers

  • Nov 19, 2013 | Richard Asquith

Japan stalls on Consumption Tax on digital services to consumers

Potential plans to introduce Japanese Consumption Tax on foreign digital services to Japanese consumers have been postponed.  There had been a plan to levy the indirect tax in time for a planned increase in Japanese Consumption Tax to 8% in April 2014.

Japanese VAT on e-books, online games, streaming music and video

Japanese-based online vendors of digital services (ebooks, streaming video, music and games) to consumers have long complained that they suffer an unfair advantage compared to their competitors based outside of Japan.  These foreigners do not have a tax permanent establishment or nexus in Japan, and currently do not have to charge Consumption Tax at 5% - which gives them an unfair competitive advantage.  This compared to the European VAT regime, which requires non-EU vendors to charge and collect the VAT applicable for the location of the customer.

This matter has come to a head with the planned doubling of Japanese Consumption Tax to 10% by 2015.  The first stage of the rise to 8% is planned for April 2014.

It had been hoped that foreign sales of digital services to Japanese consumers could be brought within the Consumption Tax net by April of 2014.  However, the Japanese Tax Commission said last week that this probably would not be implemented on time.  This is largely due to a lack of information of the volume of foreign sales, the destination and therefore the practical implications of introducing an EU-style VAT on non-Japanese vendors.  In particular, the Japanese are nervous about have their tax authorities flooded with applications from small foreign vendors for relatively insignificant tax revenues.

Australia has recently delayed raising the GST registration threshold on sales over the internet of goods by foreign vendors such as Amazon.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.