Consumption tax is the tax on “consumption” as its name indicates.
To be precise, it is the tax imposed on “added value” which is “consumed”.
Therefore, the tax should be borne by consumers.
It is the reason why we should bear consumption tax when we purchase goods or service as a consumer who had consumed (or is consuming) goods or service.
However, even though consumers may bear the consumption tax, they never pay it to the government.
The consumption tax borne by consumers is temporarily retained by individual businesses or companies that have sold goods or services then paid the government from such businesses.
Consequently, business operator that provide goods or services as “business” like individual businesses or companies are obliged to pay taxes.
Like this, a tax born by a person (taxable person) but paid to the government by the other person (taxpayer) is called an “indirect tax.
Consumption tax is a general tax widely imposed on consumption.
Accordingly, all businesses are supposed to be taxpayers and should pay the consumption tax collected from the general consumers.
However, with regard to micro enterprises that a business owner manages everything by oneself, it is anticipated that they cannot afford the administration for tax filing and payment. Therefore, small businesses whose taxable sales for the base period was 10 million yen or less are exempt from tax filing and payment obligation (Article 9 para 1 of the Consumption Tax Law (hereinafter referred as the “Law”) ).
The “base period” means the following period (Article 2 item 14 of the Law).
|Business operator||Base period|
|Individual business operator||a year before last year|
|Corporation||A corporation whose fiscal year is 1 year||a fiscal year before last fiscal year|
|A corporation whose fiscal year is less than 1 year||Fiscal year that began during 1 year starting from the day 2 years before the first day of current fiscal year.|
“Taxable sales” is sales amount of goods and services provided in Japan.
You can take it that sales of all goods or services will be “taxable sales” unless the law specifically provides it should be non-taxable.
Non-taxable sales are consideration of transfer of land, securities and interest income etc.
Export of goods or service provision from Japan to overseas should be included in “taxable sales”.
Whether or not to become a taxpayer for each year (in the case of an individual business operator) or fiscal year (in the case of a corporation) will be judged based on actual result of the taxable sales of the base period.
There seem to be quite a few business operators who have no idea if they have become taxpayers of consumption tax because they do not know the above system or just do not know exact amount of their taxable sales.
If a tax accountant has been involved in their tax filing of either income tax or corporation tax, the accountant could have pointed out it.
But if not, it is likely that the business operators do not realize it until he/she has a certain occasions (such as tax audit).
There are many special provisions on the exemption for small businesses.
They are measures to prevent abuse of the exemption rule that is supposed to relieve small businesses from tax administrative burden.
Therefore, some business operators are not exempt from the tax filing and payment obligation even if their taxable sales amount of the base period did not exceed 10 million yen.
For example, if you fall under any of the following cases, you might have already become a taxpayers.
If you have any concern, please refer to this page as well.
In October 2023 the system of tax return will be greatly changed.
Currently, taxable business operators are filing the tax return based on their accounting records (ledger system) but going to file the tax returns under the invoice system from 2023 onward.
“Invoice” means an invoice or bill.
The invoice system is a tax method adopted in the EU for the VAT purpose to make the taxpayers file tax return based on the amount of VAT stated on the invoices.
In Japan, we are going to use an invoice called “qualified invoice etc.” issued by a “registered business operator” registered to the tax office.
Other invoices can not be used for the tax filing of consumption tax.
Under the ledger system, the exemption is granted in consideration of the administrative burden of small businesses who are not able to maintain proper books and records.
Even after the invoice system become effective, the exemption for small businesses remains, however, business operators exempt from the tax filing and payment obligation (the exempt business operators) can not be registered business operator, invoices issued by the exempt business operators will not be the “qualified invoice etc”.
If a business partner is a taxable business operator, invoices issued by the exempt business can not be qualified for their tax filing purpose.
So there is a concern that taxable business operators become reluctant to deal with the exempt business operators.
As a result of such change in taxation, more small businesses may opt to become the taxable business operator due to request or suppression from their business partners.
I recommend that small businesses proactively streamline accounting function so that they can fulfill tax filings of income tax or corporation tax and consumption tax as well in efficient manner rather unwillingly become the taxable business operator.
I believe that you can make it happen together with your tax accountant and good use of the cloud accounting.