Japan uses VAT, known locally as “Consumption Tax,” as a way to generate revenue for government services. Its primary purpose is to provide a stable source of funding for essential public services like healthcare, infrastructure, and education. Japanese VAT applies equally to Non-Japanese businesses and Domestic businesses. VAT is designed to fairly distribute the tax burden across all consumers by taxing their consumption of goods and services.
By applying this tax incrementally throughout the production and supply chain, Japan ensures that each stage contributes to the overall tax revenue. This approach helps prevent tax evasion and ensures that businesses contribute their fair share while also enabling the government to sustain important social and economic programs.
Non-Japanese businesses operating in Japan must understand how VAT works to stay compliant, price their products correctly, and plan for tax implications. Consulting a Japanese tax professional can be invaluable in navigating these complexities.