• Kyodo

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As interest in digital books mounts, the government is moving to level the playing field for domestic e-book retailers by ending current tax advantages their foreign competitors enjoy.

Although Japan’s e-book business is still in its infancy, the nation’s gadget-loving consumers appear eager to try out such products. In July, online shopping mall operator Rakuten Inc. started an e-book downloading service through a Canadian subsidiary, Kobo Inc. The Kobo Touch e-book reader is priced at ¥7,980.

The company revealed a plan in early August to expand its lineup of digital books to 200,000 titles by year’s end and to 1.5 million in the next few years, as it is a “highly profitable business,” Rakuten President Hiroshi Mikitani said.

Still, Japanese e-book retailers are unlikely to cash in even if sales take off due to the current tax system, which sees them lose out to overseas rivals.

Sales of printed books, whether produced in Japan or imported, are subject to the 5 percent consumption tax. But the levy varies in the case of e-books, depending on whether the supplier is based in or outside the country.

Titles downloaded from domestic suppliers such as Yahoo Japan Corp.’s e-book store are taxed at 5 percent — the same levy imposed on printed products. However, books downloaded from Amazon.com or other foreign retailers are exempt from the levy because it does not apply to cross-border sales of electronic data.

The tax disadvantage for domestic businesses is set to grow even further in the coming years due to the planned sales tax hike.

To devise solutions, the Finance Ministry set up an advisory panel in July. Requiring foreign e-book retailers to register their business in Japan and making them subject to the consumption tax are among the measures expected to be discussed.

But it’s still anyone’s guess to what extent tax authorities will be able to scrutinize international e-commerce. “It’s easier said than done,” one senior Finance Ministry official conceded.

Chuo Law School professor Shigeki Morinobu, one of the advisory panel’s experts, warned the e-book business could turn into yet another example of the “hollowing-out” of Japan’s industry, as the skewed tax system could force domestic retailers to shift their operations out of the country to escape domestic taxation.

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