Japan shifts to tax refunds for tourists

Japan will introduce a refund-style consumption tax system for foreign visitors on Nov. 1, ending the long-standing practice of waiving the tax at the point of sale. Tourists will pay tax-inclusive prices when shopping and later receive refunds equivalent to the consumption tax after they leave the country. This marks the first fundamental overhaul of the tax-free framework for visitors in about 70 years, replacing procedures that have been in place since 1952.

The change applies across roughly 64,000 duty-free stores nationwide. Instead of receiving discounts at the register, travelers will recover the tax once customs officials at airports or seaports confirm that purchased goods are being taken abroad. Refunds may be provided in cash during the departure process or by canceling charges on a pre-registered credit card, depending on the specific implementation at departure points.

To qualify for refunds, travelers will need to undergo new customs procedures before departure. From November, inbound visitors seeking consumption tax refunds must have their passports scanned at a dedicated machine before security inspection. Customs will verify that goods are being exported, and tax exemption will only be granted if items are physically taken out of Japan.

Seven major international airports, including Haneda Airport, Narita International Airport in Chiba Prefecture and Kansai International Airport near Osaka, will allow visitors to complete procedures via a dedicated smartphone website. Customs authorities plan to deploy staff to guide travelers and aim to establish systems intended to prevent confusion and reduce congestion. Travelers will need to obtain customs confirmation for export within 90 days of purchase for the tax refund to apply.

A central objective of the reform is to combat the resale of tax-free goods within Japan. In recent years, some foreign visitors have bought large quantities of products at tax-exclusive prices and resold them domestically at prices including tax before leaving the country. Nihon Keizai reported that among 690 departing foreign visitors who each purchased at least ¥100 million of tax-free goods in fiscal 2022 and 2023, only 10% were confirmed to possess those items in predeparture customs checks.

Under the new refund-style system, the tax benefit is conditional on customs confirmation at exit points, which is expected to directly prevent such resale practices. The framework is being implemented as part of a tax reform involving the Ministry of Finance’s Customs and Tariff Bureau, the National Tax Agency, the Japan Tourism Agency and the Digital Agency, with the aim of improving enforcement while maintaining a path for legitimate tourist shopping.

Alongside tighter export verification, Japan will ease several rules around tax-free purchases. The previous distinction between general goods and consumables will be eliminated, and any single transaction totaling at least 5,000 yen before tax will qualify for exemption. The per-person, per-store daily cap of 500,000 yen on consumable tax-free purchases, such as medicines and cosmetics, will be abolished, and requirements to pack such items in special transparent bags will be scrapped.

Retailers, particularly department stores and luxury watch sellers, are preparing for the new regime and have expressed concern that requiring tourists to pay tax upfront and claim refunds later could dampen spending, at least initially. Industry officials expect short-term sales declines of around 10% to 20% in some segments, while a marketing firm has projected about a 10% drop in department store duty-free sales from the exit of operators involved in illegal resale. Authorities have set long-term targets of 60 million foreign visitors by 2030 with spending of 15 trillion yen and intend to manage the new system so that it does not become an obstacle to overall tourist expenditure.