Takashi Yamaguchi, English Speaking Japanese Tax Accountant

Reduced rate of Japanese consumption tax

If it keeps going as scheduled, tax rate of the consumption tax (a Japanese Value-Added Tax) will rise to 10% (including regional consumption tax) on October 1 next year.
However, with regard to food and drinks and newspapers (only for regular subscriptions), the 8% reduced tax rate will be applied and the tax rate will remain the same (including local consumption tax).
By the way, alcoholic beverages are not included in “Food and Beverages” (The 2016 Consumption Tax Law, Supplementary Provisions Article 28 Para 1 Item 1) , accordingly will be subject to the 10% tax.
Many people may rush for stocking up alcoholic beverage around this time of next year.

Overseas circumstances of the reduced rate

According to HP of the Japan External Trade Organization (JETRO), there are many countries that also have a reduced tax rate for everyday items in Europe as well.
For example, the VAT rate in the UK is 20% in principle, but a 5% reduced rate applies to household fuels, electricity, child seats etc. and grocery (some excluded), children’s clothes, tap water, newspaper, Pharmaceuticals, residential buildings etc are exempt (taxed at 0%).
Their taxing policy seems making necessities for people’s’ survival tax free.
Is newspapers exempted for the purpose of ensuring the intellectual survival right is it?

Meanwhile, the EU member countries also adopt a multiple tax rate system, but the scope of tax exemption seems to be limited.
For example, in the case of French VAT, standard rate is 20% and there are four reduced rates; 10% (agricultural and fishery products excluding food, renovation work of residences, some services such as restaurants etc.), 5.5% (food, books, ), 2.1% (some medicines etc.).
Italy imposes VAT at 22% standard rate, reduced rates of 10% (livestock, meat, ham, building, flour, rice, medicine, fertilizer, houseplant, fruits, fresh fish, movies, eggs, vinegar, sugar etc.), 4% (tea, Medical auxiliary equipment, fresh vegetables, milk, margarine, cheese, butter, books, newspapers, olive oil, bread, pasta etc.).
As both France and Italy do not have exempted item, their VAT policy looks quite different from UK’s. However, Italy looks more committed to food than France as they apply a lower tax rate for processed food such as bread and pasta than for wheat flour.

On the other hand, since Japan has only two tax rates, it may seem like easier to deal with. But you should not underestimate it.
It may be a start of confusion for food and beverage retailers in Japan.

Tax rate changes at places to eat and drink

As you may know by media, meals served at restaurants will be taxed at 10%.
On the other hand, take-home food and drink is taxed at 8%.
It will not be problem for stores selling only take-home food.
But it will cause practical problem for stores such as fast food restaurants, supermarkets having eat-in corners, etc., as they need to confirm every single customer his/her intention of “stay or go” before checkout to judge which rate should apply to each customer (National Tax Agency: Q & A on the consumption tax reduced rate system (case study) Q 42).
For convenience stores, as most of their merchandise are regarded as take-home food, they are deemed to confirm that customers “go” if they post notice for customers such as “Please let us know if you will use eat-in corner” and unless a customer says “I will use it” (Question 41).
If it is OK, nobody would say “I will”.

So, fast food restaurants and cafes are going to face many difficult situations.
For example, if you get Mocha Frappuccino at the same Starbucks store, 10% is taxed when you enjoy it inside the store sheltering from the fierce heat of summer whereas 8% is taxed if you drink it walking outside.
So what happens in the following cases?
A: You paid 10% consumption tax at the cashier but had to drink it at the terrace seat as the inside of the store was full.
B: You I did not even have terrace seats so you took it home as a result.
C: Because there was only one terrace seat available, you had the terrace seat and your friend stood on the sidewalk then had drinks facing each other.
D: While you were drinking in the store, you got hungry and ate bananas (taxed at 8% as a “take-home”).

(My answers)
A: Taxable at 10% as the terrace belongs to the store facility (question 40 analogy). It may not make sense to you though.
B: Taxable at 10%. “Stay or Go” is judgemental at the timing of checkout. You may want to claim 2% refund as you were eligible for the 8% reduced rate if you said “go” but it is too late (Q 43 analogy).
C: Taxable at 10%. The sidewalk is indeed outside the store (question 48 analogy) but you cannot claim the 2% refund for the same reason in the B above. It is too late.
D: Should be taxable at 8% conversely interpreting B (and C). In realty, it would be impossible for the store staff to ask you additional 2% tax charge when you start peeling the banana. Sorry, it is too late.

In any case, there may be embarrassment between the you and the staff.

The tax rate will change depending on “main character”

It is also subtle whether food with toys sold (so called “Shoku-Gan” in Japanese) at supermarkets is regarded as food (8%) or toys (10%).
However, this issue is provided by laws and regulations somehow.
Was there a Shoku-Gan mania at the Taxation Bureau of the Ministry of Finance?
The 8% reduced rate is applicable only when (i) tax exclusive price is 10,000 yen or less, and (ii) price for food is 2/3 (two thirds) or more of (i).
If any of (i) or (ii) is not satisfied, the 10% standard rate applies (The Enforcement Order for the 2016 Consumption tax law, Supplementary Provision Article 2 Item 1).
Probably usual Shoku-Gan is not able to satisfy the requirement ii) and taxed at 10%.
Many people may rush for stocking up Shoku-Gan around this time of next year.

The tax rate changes by use as well

Edible ice” used for shaved ice and frappe is regarded as food and drink whereas dry ice and cooling ice are taxed at 10% (Q9).
People would say “Ice is ice!” though.

Although mineral water is a food and drink, tap water is taxed at 10%.
It is because it can not distinguish use of tap water; cooking, drinking, living water such as a bath and washing tower. (Q8).
I personally suppose that the tap water should be at 8% as the newspaper is so.
There might have been something politics behind the scene, I guess.

10% is applicable to resale of foods and beverages whose expiration date has expired (Q10).
It is because no longer available for eating and drinking by person.
I think some are still OK to eat.

Non alcohol beer and “amazake” (a sweet drink made from fermented rice) are 8% taxable as food and beverages (Q14).
It is because it does not fall under “liquor” under the liquor tax law. Well, this simply makes sense.

Even if it is a material for food and drink, liquor is taxed at 10% (Q12).
It may be because you can get drunk with them.
People may rush for stocking up “Mirin” and “Cooking Sake” around this time of next year.

There are many examples make me laugh in the Q & A.
However, I think that there will be many confusion in October next year that Q & A does not anticipate at this moment.
What will happen to the candy store who is placing the bench in front of the store.

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