January 17, 2014
Japan will tax ebooks beginning 2015
by Kirsten Reach
Japan will start collecting taxes for online sales of foreign content in 2015. That means all ebooks, music, apps, and whatever else you might be downloading online. Daiwa Institute of Research Holdings estimates that Tokyo missed out on around 25 billion yen ($240 million U.S.) in 2012, so the country must be pretty motivated to take a second look at foreign sales.
The current system requires no tax on all electronic content from servers overseas, like Amazon, which puts “local firms at an unfair disadvantage,” according to an article by John Hofilena. Surprise: foreign content that is subject to no tax is often cheaper than domestic content. We may have mentioned Amazon and taxes once or twice (or three or four times) before.
It sounds like bad news for Rakuten, the online retailer that bought Kobo in 2012. At the moment, selling e-content to Japanese readers without tax (from a company based in Canada) puts them at a big advantage on their own home turf.
Here’s the quick backstory on the country’s tax laws: Japan’s consumption tax was introduced in 1989 at three percent. This tax on digital downloads was scheduled to take effect this spring, but officials say they need until October 2015 to sort out the details. Meanwhile, consumption tax is rising from three percent to eight percent. In 2015, it will be ten percent.
The new system is based on European Union taxing practices. At first, companies overseas will have to register with the local tax authority and pay the taxes charged on e-content. But if it is selling e-content to Japanese corporations, those corporations will be responsible for paying the sales tax.
We have to wonder who will follow France and Japan in protecting their local businesses with new e-content legislation. It’s unlikely to be the U.S., as we discussed last year.
Kirsten Reach is an editor at Melville House.