Tuesday’s consumption tax hike will in principle affect all domestic purchases of goods or services, but there are still gray areas where consumers may get surprised by unexpected levies, government officials warn.
The consumption tax reform law, part of integrated social security and tax changes aimed at doubling the sales levy to 10 percent in 2015, will raise the tax to 8 percent from 5 percent on April 1, and “there are no changes in nontaxable areas,” a National Tax Agency spokesman said.
The tax is levied on all goods and services purchased or consumed within Japan, as well as all assets leased, including DVDs and office space. That means any consumption deemed to take place outside the country is basically not subject to the levy.
Thus, mail sent overseas, exported goods, international phone calls and flights abroad are considered “consumed” offshore and exempt from taxation.
But if a computer is purchased on an overseas website for delivery to Japan, it is still considered domestic consumption, according to a Tax Bureau official.
“It is delivered to a Japanese home, meaning that transfer of the asset has taken place in Japan, and taxed at customs on the cost you paid, including the cost of the price and delivery,” the official said.
For example, the delivery company might pay the tax at customs on the purchaser’s behalf, and later charge that cost to the purchaser at the door, the official said.
But there are other cases where consumers might receive unexpectedly high bills related to purchases that are officially exempt from the tax. One case in point is medical services.
Medical services subsidized by public health insurance are tax-exempt under social security policy, but public medical fees will rise from April to cover the rise in equipment procurement costs medical institutions will see as a result of the tax hike.
The fee for the initial visit, for example, will be hiked to ¥2,820, up ¥120, while the fee for subsequent visits will rise to ¥720 for a gain of ¥30, according to the health ministry. Initial visits to dentists will climb to ¥2,340, up ¥160, while the fee for subsequent visits will rise to ¥450, up ¥30.
Treatments not covered by health insurance, including cosmetic surgery and orthodontics, will be taxed as usual, a health official said.
Other transactions exempt from the consumption tax include purchases of land and financial assets. Land isn’t considered consumed because it never ceases to exist. Stocks and bonds, meanwhile, are viewed as the mere flow of funds rather than consumption, and therefore not subject to this levy.
One area the government has yet to address is international downloads, such as electronic books and music, from overseas Internet sites. This area is not subject to the consumption tax under existing law, although domestic downloads are being taxed.
“We don’t have any concrete plans yet but it’s on the agenda of the ruling parties, said the Tax Bureau official. “We will work out various details based on the outcome of their discussion.”
The government has stated the ways that the new revenues will be used: to cover pension payouts and medical and nursing care subsidies, and policies for countering the declining birthrate.
The revenues from the higher consumption tax are to be divided between the central and local governments.
According to the National Tax Agency, 6.3 percent will be funneled to the central government coffers for spending in the above areas, and the remaining 1.7 percent will be transferred to local governments for social security expenditures.
Breakdown of consumption tax hike
Domestic purchases of goods and services.
Online purchases from overseas businesses.
Online purchases of digital content from domestic businesses.
Medical services not covered by public health insurance, such as cosmetic surgery.
Items exempt from the levy include:
Postal parcels and mail sent to overseas destinations.
International phone calls.
Stocks and bonds.
Medical services covered by public health insurance. (Medical bills will still rise to reflect the levy’s impact on hospital costs.)
Still to be determined:
Online purchases of digital content from overseas.