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Japan’s longstanding duty-free shopping system for foreign tourists is under increasing scrutiny as lawmakers and experts raise concerns over large-scale abuse and lost tax revenue. While the government defends the system as a pillar of its “tourism nation” strategy, pressure is mounting for reform or complete abolition.
Calls for Abolition Amid Abuse and Resale
The duty-free system allows foreign visitors to purchase goods without paying the 10% consumption tax. However, reports of widespread resale schemes where tourists buy large volumes of tax-free goods and resell them abroad for profit have led to public outcry.
Liberal Democratic Party lawmaker Kenji Nakanishi argued in a Diet session that “the duty-free system should be scrapped,” citing the strong purchasing power of tourists due to the weak yen. Osaka Governor Hirofumi Yoshimura also supported eliminating the tax break for tourists, stating that it is only fair to ask wealthy foreign visitors to pay the same taxes as Japanese citizens.
According to government data, foreign tourists spent ¥1.59 trillion (approx. USD 10.2 billion) on duty-free goods in 2023. If taxed, this would have added approximately ¥160 billion ($1.03 billion) to Japan’s tax revenue.
Systemic Evasion and Enforcement Challenges
The problem, critics argue, is systemic. Investigations found that only about 10% of travelers who spent over ¥100,000 were checked at customs. Many reportedly avoided inspections altogether, sometimes by refusing to show their passports. The goods had already been resold in over 90% of detected violations, making retroactive tax collection nearly impossible.
One official noted, “Even if we impose taxes, they’re rarely paid.”
Major Reform Planned: Refund-Based System in 2026
Japan will introduce a refund-based system to address the abuse in November 2026. Under the new model:
- Tourists will initially pay the full price, including tax.
- They will receive a refund at departure, subject to customs confirmation.
- Only goods purchased within 90 days of departure will be eligible.
- Duty-free stores must submit electronic purchase data to the National Tax Agency.
- High-value purchases (over ¥1 million pre-tax) will require detailed reporting of product serial numbers.
- The current ¥500,000 daily cap on consumables will be abolished.
- The distinction between consumables and general goods will be eliminated, simplifying procedures for retailers.
Authorities hope the system will align with global norms and close loopholes enabling large-scale fraud.
Global Context: Japan at a Crossroads
Internationally, Japan’s current policy is increasingly an outlier. The United Kingdom abolished tourist VAT refunds after Brexit, and the United States generally offers no VAT exemption to foreign visitors. Critics argue that Japan should follow suit and reallocate the lost revenue to domestic programs.
Yuichiro Tamaki, head of the Democratic Party for the People, has also called for an end to the system, stating that the tax should benefit Japanese citizens directly.
Still, defenders point out that Japan’s approach mirrors international trade norms: consumption tax is not applied where goods are not consumed. Kagawa University tax law professor Takashi Aoki warns that scrapping the system entirely would breach established global practices. He supports the refund-based model as a balanced alternative that prevents abuse while respecting international tax standards.
Concerns About Airport Congestion
While the planned changes are welcomed by many, there are concerns about implementation. The new model requires more detailed customs checks, which could lead to improper management of airport congestion. Authorities are preparing to bolster systems and staffing before the November 2026 rollout.
Japan is walking a fine line between promoting tourism and safeguarding tax revenue. As visitor numbers surge ahead of the 2025 Osaka Expo, the government is pressured to modernize the duty-free system without undermining its appeal. The success of the refund-based model could determine whether exemptions are preserved or scrapped entirely.
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