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I don’t get it.

We have the same system in Germany.

If you’re a small business, you don’t pay VAT for the invoices you wrote, and your business customers cannot deduct any VAT when they buy from you.

If you’re a big business, you pay vat and your biz customers deduct that vat again from their own vat payments.

It’s all good and fair, no?

I guess that before, the VAT-paying customers were subtracting 10% of their payments to small companies from their VAT payments, as if the small companies had already paid VAT?

That was effectively a Japan-specific subsidy of small businesses with a hard cutoff at 10k.

I suppose that’s why people are complaining: they would like to keep their subsidies.

In Finland and AFAIK all Nordics, all invoices must be VAT inclusive. If you are selling up until 15k EUR year you can do it VAT free, which is too small to be considered a professional business. Alternatively if you are selling services outside the EU (freelancing internationally).

It sounds like it was indeed subsidy for small businesses. I don’t know about Japan, but in some countries like Italy there is a problem of small inefficient businesses. Whether such direct or indirect subsidies are good or not for the economy as whole, to keep these small businesses around, is a good question which may not have a definite answer. Internationally it may reduce competitiveness, but it may be good for local and rural area employment, which increases the quality of life for a very small national cost.

Also there is cost for maintaining the records and adminstration: for 15k EUR/year this cost would be significant % for the actual value adding activity.

> If you’re a small business, you don’t pay VAT

Under the new Japanese system, if you're a small business but register to the tax office to get a number, you become taxable.

If instead you do nothing and don't register, you keep being exempt of taxation, except big clients will ask you for a registration number to get their rebates on their side, so you might lose them to other businesses that registered.

> It’s all good and fair, no?

as good and fair as any bigger and more powerful forces coming at you and demanding a cut of whatever it is you do... lest you're breaking the law

but this is very normalized, but ultimately is a legacy of imperialism and other kinds of centralizing powers: give your rulers some freebies or get harassed until you do

an alternative perspective is that we all need to contribute some money (and/or energy) to the public systems which do things for "all of us" as the public at large

when this is 'mandatory', like it is now (you can always not do it, but there will be consequences), we call it taxes and fees, to do this voluntarily is the now obsolete tithe (even the quantity matches 10%).

the real problem I have with this setup is that money (but I actually mean currency) is made up and controlled by governments in collab with banking corporations; which means they have ways to use this system to move some of said "energy" from us to them; this leads me to conclude that then, regular taxes like VAT are double dipping on our energy as we 1: get taxed so to give money to the government/public entities and institutions; and 2: they make up currency and extract money/energy from all of us automatically (them theories about how money is debt, combined with QE and the new quantitative tightening, are all parts of how this whole hidden system works);

arguably this way to take advantage of the currency/monetary system is only being used by private financiers (big banking) not governments which really do need the taxes to function at least for now but I already ranted too much

There's consumption tax of 10%. Freelancers basically were not collecting it up until now. Businesses didn't care.

Now, businesses can deduct the 10%, so it looks like they can reduce their bills by 10% _so long as freelancers actually collect the consumption tax_. (This wasn't in place before! consumption tax was consumption tax, not a VAT-style system)

Now in theory a freelancer can also deduct the 10% from their expenses. But many freelancers have very little in the term of business expenses (their computer, basically). So freelancers all have just taken an income hit (in a period where inflation is making a lot of basic food more expensive than ever).

The perfect storm of extra taxes, lower purchasing power to begin with, and more and more industries demanding people become "freelance" contractors rather than employees.

Very similar to the French system: if you are a sole operator under a certain revenue threshold you do not charge and cannot get rebates on TVA; if you are a sole operator with a standard company structure, you charge and get rebates for TVA.
Pardon the ignorance, but why is it a subsidy ? Wouldn't it be the opposite?

Large business remits to the government the money that they subtracted forVAT, for all sales, including tiny opcos. They then get the subtraction for VAT.

Small player gets no subtraction.

Am i wrong ?

Same here in the U.K. - when you hit £85k of revenue you need to VAT register although many businesses do it before if they’re purchasing goods.
Small businesses having insufficient margins to pay taxes doesn't mean they are inefficient. It sometimes means they don't have enough leverage to get the margins other businesses can get.

The goal is to have the bigger company pay smaller companies less by the rate to keep costs the same but negotiations are weird.

My animator friend is very upset about this because she will lose 10% of her income. I'm not sure if the anger is directed into the right direction, but I agree that it is not really a good change. I'm not looking forward to the effort and to publish my adress either. Inflation this year is absolutely brutal with some groceries almost twice as expensive.

As a freelancer I can invoice a client with consumption tax on the invoice, but not pay the consumption tax, yet the client can get the consumption tax he paid to me back. I wouldn't be suprised if criminals managed to get money from the government through fake invoices.

In Poland VAT fraud used to be absolutely huge a bit under a decade ago. After the government established really strict tracking of invoices and they started going after the VAT gangs the budget revenues literally doubled in the span of few years. I have mixed feelings about VAT here. We have one of the highest rates in Europe on most goods(23%), but running a VAT registered company I do get the VAT on purchases back. However, in the UK, where I used to have my VAT business before I could keep 60% of the VAT my customers paid me with no expenses! This scheme had different percentages for different kinds of businesses. In my case it was 13% of the net value could be kept if I remember correctly. It sure was sweet to bill a customer £10k, get £12k paid and only send £700 of VAT to the tax man without having any expenses! (the income tax is another story and it is actually way better in Poland than in UK, but that is beside the point).

So despite having run VAT registered businesses for over a decade in two EU countries I'm confused what is it that Japanese government is doing now and why. If anyone can explain it comparing it to VAT/sales tax in other countries that would be great

This sounds like abuse of animators by studios to save a lot of money. They should give them a contract or pay them more instead of people being angry they don't get that much in the beginning.
> As a freelancer I can invoice a client with consumption tax on the invoice, but not pay the consumption tax, yet the client can get the consumption tax he paid to me back.

And this is legal (not just in the sense that it’s technically allowed but also that you’re not technically required to file something at the end of the year and pay the difference [0])? Because you’re saying the government pays 10% of the purchase price in this scenario (crediting large businesses for 10% of the paid price, and that amount goes straight to you).

> I wouldn't be suprised if criminals managed to get money from the government through fake invoices.

If it really works that way, then there’s absolutely zero chance this wasn’t being milked for every ¥1!

[0] eg in the USA, residents of states that charge sales tax are legally not charged sales tax on purchases made in another state (with exceptions) but they’re technically required to track those purchases and pay the sales tax themselves at the end of the year. Enforcement is approximately zero, though.

> My animator friend is very upset about this because she will lose 10% of her income

She won't, if she increases her price with 10 pct as she should.

> As a freelancer I can invoice a client with consumption tax on the invoice, but not pay the consumption tax,

A government charges tax. Not you. If you put it on your invoice, without giving it to the government, and then the same government has to pay that same amount back to your client, clearly something's wrong ?

> I wouldn't be suprised if criminals managed to get money from the government through fake invoices.

exactly.

What is the rationale* for VAT? I have never, ever understood this. If you are an individual, you pay income tax on your earnings. Why should you be taxed on your spending as well?

* 'We want to use the money for worthy purposes' isn't a rationale. A rationale is a reason people should pay.

It all seems rather geared towards funneling money upward instead of downward. Individuals pay taxes on gross income, while businesses only pay taxes on net profit. A poor person makes a big purchase in the form of a new computer or television and pays sales tax, while a rich person makes a big purchase in the form of stock, pays no taxes, and then when he sells it he only pays taxes if he sells it at a gain and if he sells it at a loss he gets to subtract the loss from his income for the year.

Fucking imagine if you bought a car and when you resold it you could subtract the depreciation from your income taxes. No wonder the French decided public decapitation was the only solution.

> What is the rationale* for VAT? I have never, ever understood this. If you are an individual, you pay income tax on your earnings. Why should you be taxed on your spending as well?

> 'We want to use the money for worthy purposes' isn't a rationale. A rationale is a reason people should pay.

I could equally say "You pay VAT on your spending. Why should you be taxed on your earnings as well?". Ultimately governments need taxes and take them where they can find them.

The benefit of VAT is that it's a tax that's harder to evade, because the rebate system means everyone is reporting on everyone else. A high VAT rate is also a way to do stealth protectionism without falling foul of the WTO rules - domestic producers can pay de facto higher salaries (because the VAT revenue allows you to reduce income tax) whereas the full VAT rate gets paid on foreign-produced goods.

There is no rational. The government will try to tax every way possible and as much as they can possibly squeeze out of every tax payer. It's just how governments work.
VAT is not a tax on spending, but on the added value your business is producing. Which is not related on income, etc.

for more info: https://en.wikipedia.org/wiki/Value-added_tax

I'm not a fan of taxing consumption. It's hard to believe that Japan did not have this for a very long time and now we are at 10%. It's especially questionable since older people consume less, but usually have more savings.
What's the rationale for income tax? It makes no more sense to tax income than spending. I agree it's unpleasant to be "double taxed" but until the policy makers start listening to the economists it'll continue.
I'm not sure about the present justification, but VAT is an alternative to sales tax, which has existed for a very long time, while Wikipedia says income tax as we know it started in 1798, so there may be an aspect of historical legacy.

Although both VAT and income tax require states with extensive administrative capacity so I guess if there was political will to do income tax only it could be done. Maybe it is the politics of progressive vs regressive taxation? Or just that doing income tax only would mean very high income tax and high tax evasion?

It's "value added tax". If you do some business activity that increased the value of something then that increase is taxed.

The benefit is that with long production chains involving multiple business entities you tax the places proportionally to how much they earn from that production chain.

It's like income tax, but harder to dodge because you can't easily hide the sale.

Minor inconvenience vs Mexico electronic invoice hell. Our VAT is 16%, for everyone except a select group of small business, of a now discontinued tax regimen. We must issue a dual cryptographic signed XML invoice (by the emitter and the tax authority) with individualized items with ID codes from a tax authority catalog of recognized products and services, that includes tampons (53131615) to warships (25111708) to radical ecological organizations (94131701). Every invoice needs to be sent to the tax authority servers to get the second signature, without it the invoice is not valid. Without it is not possible to deduct to VAT payments, or (monthly) tax filling in general. No internet, no invoice software, no computers, equals no invoice and no invoice is almost tax fraud. A fiscal invoice is only emitted when a customer asks for it, but businesses are obliged to emit a "general public invoice" with all the sales where customers don't ask for a fiscal invoice.
Try to vacation in Italy: Consumers are obliged to get an invoice, businesses are obliged to provide one. Including cryptographic signatures (but without the big-list-of-article-numbers and centralized signatures craziness). The financial police are allowed to stop customers within a certain distance of a business and ask for the invoice for their purchase. If the customer cannot provide one, the customer and the business are fined heavily. That's why the business owner will get very angry with you when you (as a clueless tourist) immediately chuck the invoice in the bin, because why would you keep the invoice for a pack of gum...
> warships (25111708)

That's 3366113 in the US and Canada:

https://www23.statcan.gc.ca/imdb/p3VD.pl?Function=getVD&TVD=...

Where can I purchase one of those "radical ecological organizations"?
This sounds just like the VAT rules in the UK. What I don’t understand is why a company buying the services of a freelancer who isn’t consumption tax registered would be an issue in Japan.

In the UK it’s very common to buy services from non-VAT registered businesses. You don’t claim the VAT back because no VAT was added to the invoice.

It seems that in Japan, customers of small businesses could claim the VAT back even though the small business did not pay VAT.

It was a subsidy that is being removed.

It sounds very similar to the GST (goods and services tax) wee have in Canada, which was introduced by Brian Mulroney in the 1980s.

Small operators are exempt from collecting GST. What that means is that if a small operator is your supplier, then when you purchase something from them, you don't have a GST receipt. Thus, you cannot claim the "input credit" on that purchase to recover any GST.

I'm not entirely understanding the situation in Japan from the article's description, but it sounds an awful lot as if the people exploiting the small-time suppliers (freelancers making less than 10M 円) must have been fraudulently claiming that they paid the tax to those small-time suppliers, and using that to claim offset credits to reduce how much of that same tax which they collected from their customers they remit to the government.

The freelancers will look 10% more expensive, because the corporations which exploit them can't use a loophole to hold on to tax dollars.

"Please sign my petition so that my employers, who won't give me a full time job but keep me around as a disposable contract worker, can keep stealing tax money, so that I look cheaper to them, and consequently have a job so I can continue to barely make ends meet."

> Historically, businesses with annual sales of under ¥10 million ($67,500) have been exempt from the consumption tax. This isn’t going away. Tax-exempt businesses technically can continue as they were.

> Small businesses that were previously tax-exempt may need to register or risk losing clients — but if they do register, they will have to pay an additional 10% in taxes.

Not sure what is going on. Either nothing changes and things are seriously misrepresented, either, more likely, a major tax evasion loophole is being closed off.

> they will have to pay an additional 10% in taxes.

Sounds more like large corporations can not deduct taxes any more that never were paid.

I have the feeling the government is closing a tax loophole for big corporations, and those now 1) try to push that cost towards their freelancers/suppliers and 2) in order to justify this practice, started a marketing campaign that the "poor freelancers" are being targeted by the government. Business as usual imho.

It seems there are two major talking point: one is that it’s simple 10% cost penalty for previously exempted small businesses, that isn’t necessarily easy to reflect on prices. Another is that the requisite bureaucratic processing is apparently cumbersome.

So “everyone” is trying to get registered, push 10% price hike, and prepare all the forms, all at once, and realizing that it’s a bit complicated to do right now, just now. And are complaining just now.

Big business sells stuff to consumers. They collect consumption tax from consumers. That consumption tax gets sent to the gov't. This is the same as its always been.

Big business buys stuff from other businesses. When buying things, they are paying 10% in consumption tax.

With this change, the consumption tax they pay to other businesses can be deducted from the consumption tax they send to the gov't from their sales to consumers (making consumption tax be a value added tax, and avoiding deeper value chains from being "consumption taxed" over and and over and over again).

In order to support this, invoices have extra details (notably a tax number), to avoid VAT fraud.

However, businesses also sometimes bought things from freelancers and the like, who mostly did not charge consumption tax. A freelancer with an existing business relation might send a 100k JPY invoice to a business, and the business pays it.

But with this change, the business might say "hey, you're supposed to charge consumption tax right?" And would pressure a freelancer to charge 100k JPY (tax inclusive), effectively reducing the amount the freelancer get (since the consumption tax would need to be sent), _but also reducing the cost to the business_ since the 10% of paid tax reduces the amount of collected tax sent to the government, and they only really are paying like 91k JPY.

Now really really, freelancers should be like "We are going to charge consumption tax so are increasing the tax inclusive amount by 10%. Please deduct things correctly" to businesses. B2B interactions are already basically marketed at tax exclusive rates. And hey, the business can deduct.

But freelancers are bad at negotiating, and "please pay me more" is an argument that many freelancers are bad at doing this. On the business side, many businesses use freelancers specifically for cynical reasons and are very comfortable pushing for freelancers to offer to take the tax hit.

I think it's important that in this model, the amount of consumption tax given to the gov't doesn't actually increase. The amount of consumption tax collected by the freelancer is deducted by the business from its collections. This is totally advantageous to "real businesses".

I don't want to comment too much on the ethical/moral nature of it, because I'm fortunate enough to be exempt from this stuff for "clients being abroad" reasons. But it's a bit of a mess.

EDIT: also, if you register into the tax system you gotta do a lot of paperwork. People not in the consumption tax system were basically just having to report their income on a single line, and paying income tax. There's a lot of good software to track this stuff, but taxes in Japan for a freelancer was basically easy enough to entirely do on paper by just adding up invoices and dividing, up until now.

I assume that a rate of 10% VAT is rather low in comparison internationally (e.g. EU is around 20 %).

Also for typical business customers it should be identical to purchase something for a net amount of x or for a net amount of x plus taxes. They can deduct the taxes anyway and the net amount is identical. That is why usually you can display prices to business customers without VAT.

So as I understand it, it is a change, but not with any real business effects unless one of the parties had incorrect taxes before... Which would mean that this party before was subsidised by other taxpayers.

https://taxfoundation.org/data/all/eu/value-added-tax-2023-v....

There's a funny Japanese movie about small business tax shenanigans, A Taxing Woman (1987). Several of Nobuko Miyamoto's movies take a humorous look at Japanese business. Perhaps the best of those is Supermarket Woman (1996).
Only 10%? Cries in 21% VAT.
27% in Hungary
23% in Ireland.
The people voted for these taxes (or they voted for the people who voted for them).

Interestingly, however, increased govt revenue is not correlated with long-term increased economic output or GNP. (Of course, govt revenue will increase temporarily whenever taxes increase.) Most of the highest tax nations have mediocre national output.

10% increase, not just 10%
But the average wage in Japan is only $39,319
10% increase, not 10% in total.
> Small businesses that were previously tax-exempt may need to register or risk losing clients — but if they do register, they will have to pay an additional 10% in taxes.

I can understand, and in Switzerland you are tax-excempt if you are (each year) under 100k revenue. However, you won't be able to get the tax others have on their bill back then (input tax).

Besides that, taxes for revenue exist because a country (shall) provide value to you (like safety or administrative stuff, like debt collection). And this stuff must be paid too.

The common advice is to negotiate prices excl tax, and that advice has been there for quite a while. Even before the new invoice system you could have your revenue taxed if it exceeds a certain amount (10mil JPY) for a certain amount of years.

What is surprising to me is how low the business side skills of most freelancers are. E.g., they don’t have a grasp of double entry bookkeeping, despite doing the blue tax declaration (青色申告). And as soon as there is a complicated payable or receivable scenario, the simple data entry freee and the like provide breaks down.

In my opinion the general skill level is pretty low. To me it is no wonder that the tax agency organizes tax lawyer led study groups, we need more of that.

Again, no surprise that people freak out over this system, but it‘s been years in the making. And the fact that sole entrepreneurs have been able to “pocket in“ the VAT so to say has always felt like a massive ripoff to me. This is especially so because the tax burden is even higher for me as a corporation here.

Being from Germany, having proper rules for VAT deduction appears as the most normal thing to me.

Speaking as a Japanese-American who has some insight to what's going on: This is just Japanese resisting external demands to get with the times.

Sending out invoices and paying sales tax to the government as a business is just a part of conducting business in the rest of the world; most of the Japanese resisting this are doing so because they are annoyed at the extra workload keeping track of numbers (they don't know what an invoice even is) and because literally nobody likes paying taxes.

As for why the Japanese government is pursuing this, the simple answer is they need more taxes coming in to offset deficit spending.

It's also worth noting the big businesses aren't complaining, because they already handle invoices simply as a part of doing business anyway. In particular, any business with international customers need to handle invoices, regardless of size, because the rest of the world demands invoices.

I have no sympathy for Japanese folks who are against this, they need to get into the 20th century. If they're selling something they pay taxes on those sales.

> new tax regulation decades in the making will go into effect

In Poland new sweeping tax regulation was hammered in a year, introduced in autumn and went into force with the beginning of new year. It was of course full of errors and unanticipated effects and all tax advisors and accounting services companies were just winging it for the first year.

https://archive.md/UV1WR
I thought one of the reasons many smaller creators were afraid of it was the publication of their personal information when they register and that leading to potential harassment or if what you are creating is socially spicy it could lead to unwanted attention.
Come to Spain...which must have one of the worse freelance systems in the free world.