Consumers

Business entities may deduct input tax on purchase from output tax on sales.

Consumption taxTaxto be Paid

Taxto be Paid

Taxto be Paid500yen

* Calculated with a 10% tax rate

In the end, consumersbear 1,000yen

as consumption tax

Consumption taxConsumption tax

500yen200yen

700yen

300yenConsumption taxConsumption taxConsumption tax

Product producers

Taxpayers

Wholesalers

Taxpayers

Retailers

TaxpayersTaxpayersTaxpayers Taxpayers

¥11,000(Tax ¥1,100)

¥7,700(Tax ¥700)

¥5,500(Tax ¥500)

　Consumption tax is levied broadly and fairly on consumption in general. In principle, sales and provision of goods and services in Japan are subject to consumption tax, and it is imposed on sales of business entities as taxable person. To avoid tax accumulation, business entities may deduct input tax from output tax they collected through their sales and pay the remainder to the tax authority.

5 Learn about “Consumption Tax”

Consumption Tax1

Structure of Consumption Tax

　Consumption tax paid by business entities is added to sales prices as cost and supposed to be borne by final consumers (in contrast to income tax called “direct tax”, consumption tax of which taxable person and actual tax bearer are different is called “indirect tax”).

* In this chapter, consumption tax (national tax) and local consumption tax (local tax) are collectively referred to as “consumption tax”.

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Consumption Tax Rate Hike2

Consumption tax is suitable as a stable financial source for social security, as the burden is not shouldered only by specific generations such as working-age population. In addition, the impact on economic activities is relatively small, and the tax revenue is not easily affected by fl uctuations in the economy.

*

(Source) “The Financial Statistics of Social Security in Japan FY2016” by National Institute of Population and Social Security Research

FY1990 FY2017

About50

Trillion yenAbout16

Trillion yen

Taxes + Debts

(Ref.) Insurance Premiums

About71

Trillion yenAbout40

Trillion yenAbout 1.8 times

About 3.1 times

Share of Old Age in Japan(Share of Old Age = percentage of the population aged 65 years

and older against the entire population)Increases in taxes and debts to cover social security benefits

　The financial source of social security, in principle, is based on mutual support through insurance premiums. As it is difficult to cover social security expenses solely by insurance premiums, other than putting heavy burden on working-age population, tax revenues and debts are also used for that purpose. Most of the expenses currently depends on the debts, which means the burden is deferred to future generations such as our children and grandchildren.　In Japan, the aging is rapidly progressing and, at the same time, the cost of social security associated with aging continues to increase. That leads to increased dependence on tax revenues and debts as well. It is necessary to secure stable revenue in order to make the social security system sustainable for future generations.　The burden of social security, that we would benefit from, must be covered by ourselves, through sharing the cost among all generations.In addition, in order to get over the biggest hurdle of decreasing birthrate and aging population, we shall expand the social security system, which previously focused on benefits mainly for the elderly population, and convert it to the social security system for all generations so to be utilized for the child-rearing and working-age population. 　Under this background, the consumption tax rate was hiked from 8% to 10% in October 2019.

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(Source) UN, World Population Prospects: The 2017 Revision, “Population Census” by Ministry of Internal Affairs and Communications, and “Population Projections for Japan (2017)”by National Institute of Population and Social Security Research

1 out of 10 is old age (1990)

4 out of 10 are old age (2050)

（Year）

Japan

Germany

France

U.K.

U.S.

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　All of the increased revenue of the consumption tax rate hike is allocated to social security, converting the social security system for all generations by utilizing such funds for child-rearing generation through elimination of childcare placement waiting list, free early childhood education and childcare, etc.

Convert to the Social Security System for All Generations

Measures to be implemented at the time of consumption tax rate hike from 8% to 10%

<Before Conversion> Consumption tax revenue is mainly allocated to elderly population

<After Conversion> Consumption tax revenue is newly utilized for elimination of childcare placement waiting list, free early childhood educationand childcare, etc., in order to expand usage to child-rearing generations

Easier environ-ment for

child-rearing

More fulfilling and reliable living after retirement

Expanding support

・Measures to cope with decreasing birthrate・Creating a safe and comfortable work environment for women and the elderly

All of the increased revenue of the consumption tax hike is allocated to social security and converting to the social security system for “all generations”

Reduction of contribution on long-term care insurance fee for elderly people with low income

Provision of benefits for supporting low-income pensioners

Elimination of childcare placement waiting list

Free higher education

Improvement of working conditions long-term care workers

Free early childhood education and childcare

O�ering additional 320 thousand child care places by the end of FY2020

Securing more support for nursing by improving benefits and compensation for care workers

Free preschool education (kindergartens, nursery schools, and certified childcare centers) for all children between the ages of 3 and 5 (For households of lower income, infants and toddlers of ages 0-2 will also be free of charge)

More reduction of insurance premiums for the elderly population with low income

Reduced tuition/grant-based scholarship for students who are truly in need with lower income family background

Benefit of up to 60,000 yen per year for pensioners with low income

low-income pensioners

nursery schools, and certified childcare centers) Free preschool education (kindergartens, nursery schools, and certified childcare centers) for all children between the ages of 3 and 5 (For households of lower income, infants and toddlers of ages 0-2 will also be free of charge)

Reduced tuition/grant-based scholarship for students who are truly in need with lower income family background

conditions long-term care workers

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　A reduced tax rate of 8% is applied to purchases of foods and beverages (excluding liquors and eating-out) and others. The purpose of this scheme is to lessen the burden on household budget by retaining the consumption tax rate at 8% for those goods which are purchased by almost all consumers on a daily basis.

Reduced Tax Rate System for Consumption Tax3

The coverage of foods and beverages which are subject to the reduced tax rate

10％ ８％ (Standard Tax Rate) (Reduced Tax Rate)

《Eligible Items》○ Foods and drinks (excluding liquors and eating-out services) (*)〇 Newspaper (having signing the regular subscription contract and having been released twice or more a week)

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　The implementation of the reduced tax rate system means that there are several consumption tax rates (standard rate at 10% and reduced rate at 8%) depending on goods and services. Therefore, receipts that correspond to the reduced tax rate system are issued and intentions of customers need to be confi rmed as follows.　The applied tax rates can be confi rmed on receipts as described below.

Reduced Tax Rate System at Daily Shopping Scenes

How shops/stores check the intention of customers on using eating space or taking out purchased foods and beverages

Example of a receipt corresponding to the reduced tax system

XX Cake ShopTEL 03-XXXX-XXXX

17:45 Saturday, April 1, 20XX

Cream Puff ＊　 １piece　180　180YENCake ＊　　1 piece　550　550YEN

Freezer Pack 20YEN

Items with * are eligible for a reduced tax rate

Subtotal (8% Tax Rate) 730YEN

Subtotal (10% Tax Rate) 20YEN（Amount of Tax) 54YEN）

(Amount of Tax 1 YEN)Total 750YENCash 1,000YENChange 250YEN

The total amount (including tax) by each tax rate is stated

That the item is eligible for a reduced tax rate

is clearly noted

　Like restaurant services, the 10% consumption tax rate is applied when you eat and/or drink at an eating space of suppliers including fast food chains and convenience stores. On the other hand, the taking out of food and/or beverages at those stores is subject to the reduced tax rate of 8%. To determine the applicable rates, you will be asked whether you will eat your foods and/or beverages at the store or take them out.

Eating Space

Would you like to eat here at the eating

space?

(Through a shop staff) or (Through an information note)

There are several ways to confirm the intention of customers depending on business operation and practice. For example, shop staffs may ask custom-ers about their intention or shops may put information notes to make customers to notify at the cash register.

Either is applicable

If you would like to eat and/or drink purchased goods at the eating space, you should inform

at the cash register.

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