Japan is planning to tax sales of foreign online content such as e-books, apps and downloaded music by late 2015.
Japanese who purchase electronic content from foreign firms like Amazon.com through overseas servers don't have to pay consumption tax, currently at 5% but slated to rise to 8% in April. That has made foreign content cheaper than apps, MP3 downloads, software, and e-books distributed domestically.
Physical products purchased from abroad are hit with consumption tax when they clear customs in Japan, but no such levy exists for online goods.
The government plans to close the loophole and make foreign vendors selling consumer goods register with tax authorities and pay the tax. Japanese corporations that buy foreign electronic content such as business software, however, will have to pay the tax directly to the Japanese tax authorities, Nikkei Asian Review reported this morning.
"All cross-border services, not just e-books or music, are being considered (for taxation)," said a Ministry of Finance official, who spoke on condition of anonymity. "The current consumption tax law took into account the location of the entity offering the cross-border service. Some things taxed in Europe, for instance, would not be taxed in Japan. But these discussions are still ongoing."
Japanese publishers, in particular, have seen the tax-free e-books threatening competition in the domestic market. But the government had regarded purchases made through overseas servers as foreign transactions that weren't subject to the consumption tax, which was introduced in 1989 at 3%.
Some vendors moved to grab overseas distributors. Online retailer Rakuten acquired Canada-based Kobo, maker of the Kobo Arc Android tablet, in 2012. Now, the Rakuten Kobo site offers electronic books to Japanese readers without the consumption tax they would pay on purely domestic sites such as bookseller Kinokuniya's Web Store.
Research by Daiwa Institute of Research Holdings suggests that in 2012, Tokyo missed out on around 25 billion yen (£147 million) in consumption tax receipts that could have been levied on online goods and services such as music downloads and advertising.
The tax is scheduled to rise to 10% by October 2015, when foreign e-content will also be subject to it, according to the Nikkei report.