Japanese Consumption Tax rate hiked from 8% to 10%
Japanese consumption tax (JCT) rate hiked on 1st October 2019. With this change of the tax rate, reduced tax rate has initially introduced.
Reduced Tax Rate System for Japanese Consumption Tax
The reduced tax rate system for the consumption tax will be implemented from October 1, 2019, for “foods and drinks excluding liquors and eating-out services” and “subscribed newspapers published twice or more a week” to give considerations to low-income people after the consumption tax hike. The consumption tax rate for these goods will be 8% (6.24% in national tax and 1.76% in local tax), (the standard tax rate will be 10% (7.8% in national tax and 2.2% in local tax).
- Items covered by the reduced tax rate
- Foods and drinks excluding liquors and eating-out services
- Subscribed newspapers published twice or more per week
- Reduced tax rate: 8% (6.24% in national tax and 1.76% in local tax)
- Standard tax rate: 10% (7.8% in national tax and 2.2% in local tax)
- Introduction of the invoice-based method
- The invoice-based method will be introduced in October 2023.
- Business entities seeking input tax deductions are required to preserve invoices and keep related books. The amount of tax deduction is calculated by totaling the amounts of tax written in the invoices or calculating the amounts of tax based on the total amount of transactions. (Transitional measures before the introduction of the invoice-based method)
- Measures to ensure separate accounting will be implemented, while maintaining the current simple invoice-based method. Special rules will be established for the calculation of the amount of tax on sales and tax on purchases. (Transitional measures after the introduction of the invoice-based method)
- A partial deduction of input tax will be granted for purchases from tax-exempt business entities for a six-year period after the introduction of the invoice-based method.
- The government will secure a stable and permanent source of revenues to maintain the goal of fiscal consolidation and return to the original objective of achieving the comprehensive reform of social security and tax (based on Supplementary Provisions of the FY2016 Tax Reform Act); Specific measures:
- secure stable and permanent financial sources by taking legal measures in relation to revenues and expenditure by the end of FY2018; and
- consider how the government should secure revenue and manage expenditure based on the Interim Evaluation of the Integrated Economic and Fiscal Reforms and implement necessary measures.
- The government and the ruling parties will work together to make full preparations to avoid confusion when the reduced tax rate system is implemented and operated (Supplementary Provisions of the FY2016 Tax Reform Act); More specifically:
- Develop necessary structures, verify the status of preparation among business entities, and take necessary measures for the smooth implementation and operation of the reduced tax rate system; and
- verify the status of preparation among business entities to adopt the invoice-based method and the influence of the implementation of the reduced tax rate system, on the simplified taxation system and take necessary measures.
- Foods and Drinks
- Foods defined in the Food Labeling Act
- Goods provided for human drinking or eating
- Foods and drinks provided at fee-based home for the elderly, school lunches, etc.
- Takeout foods
- Liquors (Liquors defined in the Liquor Tax Act)
- Eating-out Services – Food and drink services that business entities provide to customers at sites with dining equipment (including tables, chairs, and counters) designed for such services.
- catering and Cooking Services – Food and drink services provided at sites designed by customers.
- Drugs and Quasi-drugs
- Combined product
- Where food is sold together with goods other than food as one combined product, such combined product will be treated as “foods and beverage” and the reduced tax rate is applied if the price of the product (excluding tax) is less than JPY 10,000 and 2/3 or more of the price relates to food.
|8% Reduced Rate||10% Regular Rate|
|Bottled water||Tap water|
|Nonalcoholic beer||Beer,happōshu, “third beers”|
|Mirin-style seasoning (less than 1% alcohol content)||Mirin(treated as alcoholic beverage)|
|Takeout hamburger||Hamburger eaten on premises|
|Hamburger meal with toy (toy treated as free)||Toy with candy as extra|
|Soba or sushi home delivery||Meal at soba or sushi restaurant|
|Convenience storebentōconsumed elsewhere||Convenience storebentōconsumed at eat-in space|
|Takeout from street stall||Meal at food court|
|Amusement park food consumed away from concession stand||Amusement park food consumed at concession stand tables and benches|
|Bentōeaten at meeting||Meal at catered party or business trip|
|Meal at private elderly care home, set school lunch (kyūshoku)||Meal at company or school cafeteria|
|Drink from hotel refrigerator/minibar||Hotel room service|
|Fruit gathered at strawberry picking business and taken home||Admission fee for (on site) all-you-can-eat strawberry picking|
|Subscription for print newspaper published at least twice weekly||Newspaper bought at convenience store or digitally|
Domestic transactions subject to consumption tax include the transfer or rental of assets or the provision of services as a business in Japan by an enterprise. Import transactions such as cargo retrieved from a bonded zone are also liable.
Notable exemptions include export transactions and export-like transactions such as international communications and international transport. Capital transactions, financial transactions, and some transactions in the fields of medical care, welfare and education are non-taxable.
Under the Japanese Consumption Tax Law (JCT), small enterprises with taxable sales of ¥10 million or less in the base period (e.g. the period two terms prior to the current tax year) do not need to file a JCT return. This is only an exemption from filing, and as such, tax-exempt companies are still required to pay JCT to the vendor or service supplier when purchases are made.
Likewise, the JCT Law does not prohibit tax-exempt enterprises from charging JCT to its customers. Tax-exempt enterprises are, in effect, allowed to keep the collected taxes minus the JCT on purchases. For some businesses this may result in significant windfalls; although these are subject to corporate income tax.
The Consumption tax has to be collected on all transactions made by companies, even business to business transactions. It means that a company will also pay the Consumption tax when it purchases goods or services for its business activities. But the amount of Consumption tax paid will be compensated with the amount of the Consumption tax collected. Companies collecting Consumption tax in their business activities must file returns and pay only the difference between the amount received and the amount paid during the taxable period.
Consumption tax is due on all incomes deriving from domestic business transactions done by companies. In retail business, price tags will have to include the Consumption tax amount. In a business-to-business environment though, invoices are usually issued with the net value of the service rendered on which Consumption tax is separately applied to result in the total amount due.
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