Concerns over Invoice System
As you may know, Japan’s New Invoice System will be in force from October 2023. It might have big impact on small business owners whose taxable annual sales are below 10 million yen.
If you switch to a taxable business provider to issue Qualified Invoice, you will lose 10% profit tax. On the other hand, if you do not switch to taxable business provider, your client might stop doing business with you or might reduce the amount equivalent to consumption tax from transaction price.
For details about this problem, please refer to “Invoice System in Japan“.
Is it violation of Anti-Monopoly Act?
Japan’s national tax agency was assuming that many companies and freelancers will switch to taxable business providers. However, it’s not going the way they expected. Large number of businesses have not yet applied for the registration.
And there was a news which would support decision of non-registration. In May 2023, Japan Trade Commission issued a notice to prevent violation of Anti Monopoly Act or Subcontracting Act in connection with implementation of this new invoice system. 「インボイス制度の実施に関連した注意事例について」
Unilateral notification below may violate the Antimonopoly Act (独占禁止法）or Subcontracting Act（下請法）.
“If you do not become a taxable business provider, we will reduce the transaction price. And if you do not accept such reduction, we will terminate the transaction with you.”
Therefore, companies need to be careful not to force small companies or freelancers to become taxable business providers by utilizing their strong bargaining power.
The notice also suggests that deduction of the amount equivalent to consumption tax from transaction price is too much.
As a transitional measure to ease the drastic change, a certain percentage of the amount equivalent to purchase tax credit to be deducted for purchases from unregistered businesses during six years from the implementation of the invoice system.
More specifically, 80% can be deductible for the period from October 1, 2023 to September 30, 2026 and 50 % can be deductible for the period from October 2026 to September 30, 2029.
Therefore, while such transitional measure is effective, reduction from transaction price should be limited to the amount of consumption tax which is not deductible (20% from October 1, 2023 to September 30, 2026, and 50% from October 2026 to September 30, 2029).
Many people are still considering whether to become a taxable business providers to issue qualified invoice. This is a critical issue that directly affect their lives. It is expected that concerns and troubles over this new system will continue to occur for a while.