Effective as of April 1, the combined rate of national and local
consumption taxes has increased from 5 percent to 8 percent (6.3
percent national tax and 1.7 percent local tax). The consumption
tax rate is planned to further increase from 8 percent to 10
percent (7.8 percent national tax and 2.2 percent local tax) on
October 1, 2015. Accordingly, subject to certain exceptions,
consideration paid for the transfer or lease of assets or the
provision of services for business purposes on or after April 1, is
subject to the new 8 percent consumption tax rate. However, the
consumption tax rate of 5 percent will apply to any transfer or
lease of assets or provision of services for business purposes
occurring prior to April 1, even if such consideration is actually
paid on or after April 1.
The Japanese consumption tax is characterized as an indirect tax.
Therefore, almost all domestic transactions and all transactions
concerning the importation of foreign goods are subject to
taxation. Under the Consumption Tax Law, taxable domestic
transactions are defined as domestic transactions in which
consideration is paid for the transfer or lease of assets or the
provision of services for business purposes. Exceptions include
transfers of accounts receivable, transactions involving securities
and other financial or capital, and the provision of medical,
welfare, educational, and other services, all of which are outside
the scope of the Consumption Tax Law. The consumption tax is
structured to ultimately be passed on to consumers by affixing it
to the price of products and services provided by a taxable
enterprise. In order to eliminate multiple taxation at each stage
of manufacturing and distribution, crediting the consumption tax on
purchases against the consumption tax on sales is allowed. The
basic formula for calculating the consumption tax is: (total amount
of consumption tax on sales) minus (total amount of consumption tax
on purchases).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
