Japan mulls taxing overseas digital content

Japan's finance ministry is considering imposing consumption tax on digital content, such as music and books, downloaded from Web sites operated by overseas vendors, according to The Japan Times over the weekend.

The ministry hopes that the change, which could take effect in Apr. 2014, will provide a level playing field for domestic digital content providers who might be hit by a possible hike in taxes on local goods, sources told the news daily.

Last month the cabinet's Lower House passed a bill to raise the consumption tax from 5 percent to 8 percent by 2014, which sparked speculation that this would force local businesses to base operation overseas. The bill is now waiting approval from the Upper House.
A panel will be created as early as next month to discuss a possible system to collect the revenue, and the consumption tax will only apply to domestic transactions and tangible good imported from abroad, the sources noted.

Currently, overseas downloads and online content provided by Amazon.com and other businesses remain tax free even when purchased in Japan because such transactions are considered to have taken place outside Japan's border, they added.

In working out a taxation method, Japan may also take cue from the European Union's value-added tax on online products from outside the region, the newspaper stated. Securing a fair taxation system for these products is considered difficult as much effort is needed to fully track online transactions, it noted.