The Finance Ministry plans to impose a consumption tax on electronic books sold in Japan by foreign companies such as Amazon.com Inc., sources said on June 28.
Officials want to impose the levy, which could be introduced as early as 2014, to stop overseas e-book sellers from gaining a competitive advantage against Japanese rivals that have to pay a consumption tax. The fear is that a failure to act would force Japanese companies to relocate abroad to ensure a level playing field.
According to the existing Consumption Tax Law, a consumption tax is imposed on imported physical goods at customs houses. However, if electronic data such as e-books or songs are sold to consumers in Japan from overseas through the Internet, a consumption tax is not imposed.
“Such a transaction was unthinkable in 1989 when the law was introduced,” a government official said.
The government is considering imposing a consumption tax on the transactions by forcing overseas companies that plan to sell electronic products in Japan to register themselves in advance. A similar registration system has been operating in the European Union since 2003.
The Finance Ministry plans to set up an expert study group as early as July to look at the implications of introducing the registration system in Japan. It plans to submit bills to the ordinary Diet session in or after spring 2013.
The ministry is under pressure to introduce the revisions to the Consumption Tax Law as early as possible because Amazon.com, the largest e-book retailer in the world, is planning to enter the Japanese e-book market in the near future.
Japanese online auction site operator Rakuten Inc. is considering avoiding the payment of consumption taxes on e-books by routing its products through a company in Canada from late July this year.
At present, Amazon.com is selling songs and computer software in Japan through the Internet and pays no consumption tax. Japanese sellers are likely to be undercut if it adopts a similar approach with e-books.
In the music market, U.S.-based Apple Inc. is currently selling its products in Japan through a Japanese arm, effectively “voluntarily” paying a consumption tax.
An executive of a major e-book seller in Japan said: “If we are put in a disadvantageous position, we will have to move our offices to foreign countries to counter overseas rivals.”
A government official said: “We need to deal with the situation quickly because the market is moving fast.”
(This article was written by Takashi Kamiguri and Junichiro Nagasaki.)
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