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Material on Consumption Taxation

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○ Consumption tax is imposed with a focus on consumption of goods and services.
○ While the burden of consumption tax is imposed on final consumers, business entities are liable to pay the tax
   to authorities.
○ The total amount of consumption tax paid by business entities in respective stages of each transaction, from 
   manufacturing to wholesale and retail, is equivalent to the total amount of consumption tax paid by 
   the consumer.
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(Note) "Consumption tax" mentioned above includes the local consumption tax

The reduced tax rate system on the consumption tax is in operation from October 2019 to give considerations to the lower income group after the consumption tax hike. (in accordance with Article 7 of the Fundamental Tax Reform Act)
○  Items covered by the reduced tax rate
 - Foods and drinks excluding liquors and eating-out services
 - Subscribed newspapers published twice or more per week  

○  Reduced tax rate: 8% (6.24% in national tax and 1.76% in local tax) 
    Standard tax rate: 10% (7.8% in national tax and 2.2% in local tax)  

○  Introduction of the invoice-based method
  - The invoice-based method will be introduced in October 2023.
  - Business entities seeking input tax deductions are required to preserve invoices and keep related books. The
    amount of tax deduction is calculated by totaling the amounts of tax written in the invoices or calculating the
    amounts of tax based on the total amount of transactions. 
    (Transitional measures before the introduction of the invoice-based method)
  - Measures to ensure separate accounting will be implemented, while maintaining the current simple invoice-based
    method. Special rules will be established for the calculation of the amount of tax on sales and tax on purchases.
    (Transitional measures after the introduction of the invoice-based method)
  - A partial deduction of input tax will be granted for purchases from tax-exempt business entities for a six-year period
    after the introduction of the invoice-based method.  

○  The government will secure a stable and permanent source of revenues to maintain the goal of fiscal 
    consolidation and return to the original objective of achieving the comprehensive reform of social security and 
    tax (based on Supplementary Provisions of the FY2016 Tax Reform Act); Specific measures:
  (1) secure stable and permanent financial sources by taking legal measures in relation to revenues and
       expenditure by the end of FY2018; and
  (2) consider how the government should secure revenue and manage expenditure based on the Interim
       Evaluation of the Integrated Economic and Fiscal Reforms and implement necessary measures.  

○  The government and the ruling parties will work together to make full preparations to avoid confusion when 
    the reduced tax rate system is implemented and operated (Supplementary Provisions of the FY2016 Tax Reform 
    Act); More specifically:
  (1) Develop necessary structures, verify the status of preparation among business entities, and take necessary
       measures for the smooth implementation and operation of the reduced tax rate system; and
  (2) verify the status of preparation among business entities to adopt the invoice-based method and the influence
       of the implementation of the reduced tax rate system, on the simplified taxation system and take necessary
       measures.
 
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