TOKYO -- Tokyo Customs failed to ask inbound foreign tourists to pay at least 339.87 million yen (about $2.22 million) in consumption tax for failing to present their duty-free purchases when leaving the country in fiscal 2022 and 2023, the Board of Audit of Japan has found.

The audit board has informed the Ministry of Finance that current guidelines for tax collection are "inappropriate" and do not align with the reality of the surge in inbound tourists.

Imposing tax on missing duty-free items is considered a way to stop people from consuming or reselling duty-free goods in Japan. When a tourist purchases items duty-free, the store shares their passport number and a list of purchased items with customs, which then checks these items at the airport. Customs regards cases where tourists attempt to leave Japan without the listed items as "suspicious departures," and notifies them that they must pay the corresponding consumption tax. While such notifications aren't enforceable, if the travelers return to Japan, customs officials are able to confirm that they are tax delinquents.

The audit board investigated the taxation situation of tourists who made "suspicious departures" during fiscal 2022 and 2023, when foreigners spent some 64.7 billion yen (around $423 million) on duty-free items. It came to light that notices weren't issued for nine individuals who departed from Haneda Airport and Narita Airport in fiscal 2022 for tax payments totaling 339.87 million yen. Each of them had spent over 100 million yen (roughly $654,000) on duty-free goods, with the total purchase price reaching about 3.4 billion yen (approx. $22.22 million).

Notifications were previously sent in writing, but due to legal revisions, most notices have been given verbally since fiscal 2022. However, the Finance Ministry's guidelines require written notifications to be sent to tourists in cases where "the purchase amount exceeds 100 million yen, and the departure date is known in advance."

Customs officials responsible for the nine individuals explained to the audit board that they forwent sending the written notifications because "there wasn't enough time to create the documents." Five of the nine tourists could have been verbally notified, but the Finance Ministry mistakenly told customs that "written documents are necessary." The remaining four were subject to written notifications but arrived at the airport just before the end of the boarding process, leaving insufficient time to handle their cases.

The Board of Audit pointed out that the shift from written to verbal notification was made in consideration of the time constraints imposed right before departing from Japan, and that procedures violating this change were "inappropriate." It also suggested the tourists may have exploited the time constraints to deliberately evade taxes.

The purchase of duty-free goods by people who intend to evade tax and resell the goods has been seen as problematic. The Japanese government has accordingly decided to implement a "refund method" in the future, where tourists would pay consumption tax at the time of purchase and receive a refund for the duty when they leave the country.

(Japanese original by Toru Watanabe, Tokyo City News Department)