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Tax agency's FAQ on reduced consumption tax rate seen as confusing

Liquor and snacks are on sale at a convenience store in this file photo taken in Tokyo's Chuo Ward on May 15, 2017. The reduced consumption tax rate will not apply to liquor when the tax rate is raised to 10 percent in October 2019. (Mainichi/Junichi Sasaki)

TOKYO -- Moves by the National Tax Agency (NTA) to expand a list of frequently asked questions over what will be subject to the reduced consumption tax rate is expected to cause confusion at retail stores and other businesses.

The agency took the action in response to concerns expressed by retail industry insiders that it would be difficult to judge which items the reduced rate will apply to and on what occasions.

However, the retail industry is not convinced by the move. "We appreciate the expansion of the Q&A list, but I don't think it will respond to all cases," said a high-ranking official of a distribution industry organization.

The 8 percent reduced rate will apply to food products and drinks, except liquor, after the consumption tax rate is increased in October 2019 to 10 percent, but not on items served at eateries. However, customers can consume food products that they buy at convenience stores and supermarkets inside eat-in spaces at those stores. The industry asked the government to explain whether the reduced rate will apply to such cases.

In response, the NTA stated in the Q&A list that in addition to eat-in spaces, aisles and areas outside shops where benches are installed should also be regarded as dining spaces unless there is a sign saying, "Eating and drinking prohibited."

Shops are required to ask customers whether food items are for takeout or dine in, and the reduced consumption tax rate will not apply to food products that customers eat inside stores.

With regard to methods of confirming customers' intentions, the list says store operators can just put up a notice saying, "Please notify the staff if you are going to eat inside the store." The list also states that stores can apply the reduced tax rate to all foods and drinks without confirming the will of customers as long as they put up a notice saying, "Eating and drinking prohibited," on their premises and customers are not seen eating inside.

According to the list, the consumption tax rate levied on the rental fees for water servers will be 10 percent while the 8 percent rate will be levied on water contained in such machines. Another example is that the 10 percent rate applies to sushi that customers take from a conveyer belt at sushi bars and take it home, while the tax rate imposed on sushi they buy at the counters of such establishments for takeout will be 8 percent.

Still, there are expected to be numerous cases where shop staff will be confused over the tax rate.

For example, if a customer pays the 10 percent consumption tax on a food product at a store with the intention of eating inside but takes it home after finding the shop's eat-in space is full, the store has no duty to refund the 2 percent tax differential to the customer.

However, the store can refund the 2 percent tax difference at its own discretion. "It depends on each retail store," said an NTA official in charge of the matter. Therefore, retail stores could be embroiled in disputes with customers in such cases depending on the establishments' response.

"It's impossible for convenience store employees to confirm if customers will take away their food items as they explain. We're worried that stores will give customers a sense of discomfort," said an executive of the operator of a major convenience store chain.

Moreover, there is a possibility that stores will apply the reduced tax rate to all customers who buy food products and drinks and give a tacit nod to those who eat inside the stores.

An NTA official warns that in such cases, the agency "may instruct such retailers to rectify their practices under the Consumption Tax Act or require them to amend their tax returns."


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