Move slow on tax for departing travelers

A plan is being discussed to impose a new tax on each traveler as they leave Japan — citizens and non-Japanese alike — to help finance measures promoting inbound tourism. There may be little resistance to such taxation since it will target people who can afford overseas travel and the amount, likely to be paid together with air fare, will be small. However, whether the proposed tax is really necessary — and whether it targets the people who will benefit from the initiative — should be examined carefully.

The way the tax has been hastily discussed and proposed since the idea first surfaced in the summer raises some serious questions. After only two months of discussion, an experts panel at the Japan Tourism Agency in mid-October proposed the tax be imposed on travelers either upon entry or departure, to raise funds for the promotion of inbound tourism. Endorsing the proposal, the Liberal Democratic Party’s research commission on tourism in mid-November called for the creation of a ¥1,000 “tourism promotion tax” on each person departing Japan, saying the new levy is needed to help achieve the government’s target of boosting inbound travelers to 40 million in 2020, when Tokyo hosts the summer Olympic and Paralympic Games. The following day, the idea was supported by infrastructure and transport minister Keiichi Ishii, who belons to Komeito, the LDP’s coalition partner.

The creation of the tax — now being discussed by the LDP’s tax commission — appears certain. Relevant bills will likely be submitted to the Diet next year, and the levy is expected to be imposed beginning sometime in 2019. Inbound tourism is one of the economy’s few rapidly booming sectors, and the administration of Prime Minister Shinzo Abe apparently hopes to use the revenue to fund tourism-related measures outside popular destinations like Tokyo and Kyoto, which would also contribute to its agenda of regional revitalization.

In 2016, 24.04 million inbound travelers visited Japan and were estimated to have spent ¥3.74 trillion — nearly three times and 3.5 times more, respectively, than five years earlier. In the first 10 months of this year, Japan already received 23.79 million inbound tourists, with the total for this year expected to top 28 million. If the planned tax had been imposed in 2016, it would have generated ¥40 billion in revenue — nearly twice the tourism agency’s initial budget for fiscal 2017.

Possible use of revenue from the tax may include speeding up the immigration procedure at ports of entry, installing more multilingual signs and promoting tourism in rural areas. There is concern that if part of the revenue is distributed to local governments, however, it may be difficult to trace whether the money is indeed used for the promotion of tourism.

The discussions by the tourism agency panel did not go into specifics on how the revenue would be spent. It did not discuss such issues as the size of the Immigration Bureau staff needed to cope with the rise in inbound travelers, the cost needed to cover increasing such staff and other conceivable means to expedite immigration procedures. In other words, the panel did not make clear what concrete purposes the tax revenue would be used for and how much money it would take to achieve them, which should be the basis for explaining why the new tax is necessary.

The tax should also be examined in light of whether those who pay the levy will benefit from it. Currently, Japanese travelers can enter or depart the country without having to wait a long time at airports, and they will have no use for more multilingual signs. Still, based on the 2016 figures, Japanese travelers will be coughing up roughly 40 percent of the revenue brought in by the tax. Last year, departures of Japanese travelers totaled 17 million compared with 24 million arrivals of inbound tourists.

Before the government introduces a new tax specifically designed to promote tourism, it should first explore whether the funds cannot be secured by reviewing priorities in tourism-related spending — which is growing at both the national and local levels — under the existing budget. It should publicly explain how much money is needed for what specific purposes and how much money it has to raise by introducing the planned tax. It might make more sense for the government to turn to revenue gains on existing taxes owing to the inbound tourism boom. The government should not be cavalier about introducing a new tax.