Photo/Illutration The Finance Ministry building housing the National Tax Agency in Tokyo (Asahi Shimbun file photo)

The Japanese government decided to tighten rules concerning tax-exempt products bought at duty-free stores to prevent foreign visitors from reselling the goods within Japan for illegal profits, sources said.

The revisions will be finalized by the end of the year and implemented as early as fiscal 2025, they added.

Visitors who spend more than 5,000 yen ($32.40) on duty-free goods for personal use are exempt from the consumption tax.

The use or resale of these duty-free purchases within Japan is prohibited, but this has occurred frequently under the current system, which has been criticized as lax, impractical and easily exploited.

The changes will require visitors to pay the full price for goods--including the consumption tax—at the duty-free shops, and these purchases will be recorded electronically in their passports.

Upon departure at airports or seaports in Japan, the passports will be scanned to confirm the purchases, and customs officials will refund the consumption tax to the departing travelers.

Since opening the suitcases of every tax-free shopper is impractical, customs officials will only inspect luggage for purchases that exceed a certain amount, which will be determined later, the sources said.

Currently, tourists are not charged the consumption tax on purchases at duty-free shops. If they want to resell the goods, they must pay the 10-percent tax.

Under the law, these buyers are required to present their passports to customs upon departure and confirm the purchases.

But in reality, many people leave the country without officials inspecting their luggage to ensure they still had the products.

In fiscal 2022, 3.71 million people from abroad bought tax-free goods. Of them, 54,000 each spent more than 1 million yen and 2,200 each spent over 10 million yen.

That same year, customs inspected the baggage of 57 of the 374 people who had purchased more than 100 million yen in tax-free goods. Officials found that only one had actually packed the products.

The 56 others are suspected of reselling the goods within Japan for illegal profits, and the government has demanded they pay the consumption tax.

Only one has complied.

The remaining 55 owe a total of 1.85 billion yen in unpaid taxes.

Lax enforcement of tax-free regulations at shops is also a problem.

Since last year, tax authorities have ordered major department stores in Tokyo and Osaka to pay back hundreds of millions of yen in consumption tax.

These stores were found to have sold tax-free goods to visitors who intended to resell them.

Government officials have been working on the issue since the Cabinet approved a tax reform outline in December.

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