Do you know where the material you download originates? That’s a question that Japanese taxpayers will need to ask themselves starting in 2015.
Japan is planning by the end of that year to tax sales of foreign online content such as e-books, apps and downloaded music, according to Japanese newspaper reports.
Electronic loophole closing
The proposal is not a strictly new tax. Rather it would close a tax loophole.
Japan collects a consumption tax on all physical products purchased from abroad. It’s added when the items clear Japanese customs.
But when the country’s consumers buy electronic content from foreign firms like Amazon.com through overseas servers, they escape the national consumption tax.
That’s a lot of tax that Japan is missing out on. An estimate by Daiwa Institute of Research Holdings found that in 2012, around 25 billion yen, or $240 million U.S. currency, could have been collected if the consumption tax applied to online material.
That amount is based on Japan’s current consumption tax rate of 5 percent. It’s scheduled to go to 8 percent in April. By October 2015, the tax will be 10 percent, just in time for the closure of the foreign downloading tax-free door. How convenient.
Leveling the playing field
Japanese officials also say the physical versus online tax difference is unfair.
And in addition to leaving lots of tax dollars on the table, Japanese officials say tax-free foreign online content puts its own creators at a disadvantage. The foreign tax-free downloaded content is cheaper than apps, MP3s, software and e-books that are made in Japan.
The plan is to require registration of and tax payment by foreign vendors that sell consumer goods. On the business side, Japanese corporations that buy foreign electronic content such as business software will have to pay the tax directly to the Japanese tax collector.
U.S. online tax similarities
Does all this sound familiar?
While the Japanese online tax issue is not strictly analogous to the current online sales tax battle now being fought in the United States, there are many similarities.
And the Japanese move could provide a little extra argument for supporters of the Marketplace Fairness Act that is pending in the U.S. Congress.
The bill would provide for collection of state and local sales taxes on all online purchases of products. Now the taxes are collected only if the seller has a physical presence, such as a warehouse, in the state where the item is shipped.
Supporters of the nationwide tax collection could point to the Japanese action, citing it as a way that country is protecting its local businesses.
Of course, it also could lead to similar tax protectionism here as lawmakers are always looking for new revenue streams.
Do you ever download content from foreign sources? Do you think the Japanese are on the right tax track?
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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”