Tax authorities are preparing to act against a possible increase in abuses of a rule that exempts export transactions from sales levies following October’s consumption tax hike from 8 percent to 10 percent.
The value-added tax is levied at each stage of distribution for goods and services, with the tax that’s already been paid at the previous stage deducted.
But the tax is exempted if sales of goods are treated as an export transaction. Under the export exemption system, therefore, the tax paid on goods shipped abroad or sold to foreign visitors at duty-free shops is refunded.
Abuses of the system were found after the consumption tax was raised from 5 percent to 8 percent in April 2014, and the National Tax Agency is expecting deceitful transactions to claim bigger refunds will climb now that the levy is at 10 percent.
In the year to June 2015, or the first accounting year after the tax hike to 8 percent, there were 726 cases uncovered in which enterprises defrauded the state of tax refunds, a sharp increase of 144 from the previous year, the agency said. Cases have since remained high, at around 800. A total of 829 were uncovered in the year through June 2019.
Penalties slapped on offenders in the past three years totaled more than ¥23 billion.
Criminal charges lodged against serious offenders have also risen. In fiscal 2019, regional taxation bureaus nationwide filed 16 charges for fraudulent refund transactions worth ¥1.9 billion.
In June 2018, for example, the Tokyo Regional Taxation Bureau filed a criminal complaint against a company operating duty-free shops, claiming they fraudulently attempted to receive a tax refund of some ¥100 million on disguised sales of luxury watches to foreign tourists. The bureau claimed the firm’s scheme involved copying passports bought from travel agents and fabricated sales records.
Fraud involving smuggled gold bullion also increased sharply after the tax hike to 8 percent. Sales taxes on gold imports are levied at customs.
The workload on tax offices has grown heavier as the number of claims for tax refunds has increased in line with the tourism boom. After some 180,000 claims in fiscal 2017, about ¥4.1 trillion was refunded.
The agency set up task forces at the Tokyo, Osaka and Fukuoka regional taxation bureaus in July 2018 to prevent such tax fraud. With a total workforce of 16, the teams collect information from other regional bureaus across the nation to support their probes.
“Illegal refunds are equivalent to defrauding state coffers out of money and are highly malignant,” a senior agency official said. “We should crack down on the practice more strongly, as the higher the tax rate goes, the more profitable it becomes.”