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HOME  > Past issues  > 2012 May 23 - 29  > Exporters’ way of making money from consumption tax
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2012 May 23 - 29 [FINANCE]

Exporters’ way of making money from consumption tax

May 25, 2012
Relevant tax laws require consumers to pay the consumption tax when they purchase goods and services, and business operators to pay the tax to the tax office. The latter pay the cash difference between the consumption tax they pay “on the purchase” and that they receive “on the sale”.

Take for example, when a company buys raw materials and parts for 8 billion yen, uses them to make products, and sells them for 10 billion yen. Adding the 5% consumption tax, this company actually pays 8.4 billion yen for the purchase, and receives 10.5 billion yen from the sale. That means that the company will pay the tax office 0.1 billion yen as the difference in the tax.

Like many other countries, Japan gives the exemption from the consumption tax for exports because it is unreasonable to collect the consumption tax from overseas consumers.

Exporting companies bear the burden of the consumption tax although they cannot receive it, so the tax office refunds the tax to these exporters. This is called the export drawback system.

However, some large exporting companies do not pay smaller businesses or subcontractors the consumption tax for the purchase as a means to beat down cost prices. That causes them to spend their own money on the tax, which buyers are supposed to pay. Nevertheless, large exporters benefit from the drawback system.

In this manner, export giants are taking advantage of the drawback system. They will gain more rewards if an increase in the consumption tax rate comes into effect, and smaller business operators and subcontractors will bear more burdens of the tax.

The government should instruct large corporations to stop forcing subcontractors to accept unfair deals and should not raise the consumption tax rate.
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