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Would-be shoppers daunted by Japan's duty-free rules

TOKYO -- Japan welcomed a record 1.23 million visitors in April, topping 1 million for the second straight month. But though the country is moving closer to its goal of attracting 20 million arrivals by 2020, the year Tokyo hosts the Summer Olympics, cumbersome duty-free procedures are putting a damper on foreign visitors' shop sprees.

Struggling to change

Construction is well under way at the former site of the Matsuzakaya Ginza department store in Tokyo's Ginza shopping district. The site is being redeveloped into a huge shopping complex scheduled to open in 2016.     

Each store in Lumine, a shopping complex in Tokyo's Shinjuku, informs foreign customers that they are a duty-free shop.

     The project is led by J.Front Retailing, the operator of Matsuzakaya and Daimaru department stores, and three other firms, which include a real estate development company under luxury French brand Moet Hennessy-Louis Vuitton. To capitalize on Ginza's world-class status, the Ginza 6-chome Urban Development Consortium, set up by the four partners in December 2012, proposed opening a duty-free outlet inside the new building as Japan's first city-focused duty-free shop.

     Duty-free shops, which are often located inside international airports, exempt foreign shoppers from sales tax and tariffs. Given the members involved in the Ginza project, opening a duty-free shop in the new facility seemed feasible, but the idea was scrapped. The reason? The deals might be too good.

     An imported leather bag, for example, sells for 20% to 30% cheaper at a duty-free shop than at ordinary stores. The consortium feared this price gap could encourage some tourists to resell items they bought at a duty-free shop to a used clothing store or pawn shop for a quick profit. That could affect sales of luxury brands in Ginza, which is home to many upscale stores.

     The consortium also discussed the option of delivering purchased items to visitors' point of departure, but the idea was turned down due to the difficulty of finding out which airports they will use and securing a place to store the items once they were delivered. "It was not realistic," said Shunichi Samura, chairman of the consortium.

     The idea of reimbursing the 8% sales tax after the purchase of items was also floated. Daimaru and Matsuzakaya department stores are already using this method to allow foreign tourists to claim a tax refund on all items purchased under the same roof.

     This system, however, is not applicable to the new shopping facility. Under the existing rules, the duty-free retailer status is given to individual stores, which then pay the consumption tax to tax authorities. A department store is considered one entity, so it can handle all duty-free procedures at one counter despite housing many stores. But this is not the case with shopping facilities, which lease space to tenants. Customers need to fill in duty-free documents at each store, even though they are located in the same building. The new facility in Ginza falls into this latter category.

An easier way?

The system is also hard for many foreign shoppers to understand. In Shinjuku, another popular shopping district in Tokyo, foreign visitors often complain that while they only have to apply for duty free at the Isetan department store once, they need to fill in forms at every store they shop in at Lumine, a fashion-centered retail building. "It is difficult for our sales staff to explain about the different duty-free procedures in foreign languages," said Yoshiaki Arai, president of the company.

     In Europe, procedures for tax refunds are simple and quick. Travelers file claims for value-added taxes they have paid and the money is later remitted to a designated bank account. Most merchandise subject to VATs are eligible for a tax refund.

     This autumn, the Japanese government will expand the scope of tax-refundable merchandise to foods, beverages, cosmetics and medicines, in addition to the currently eligible consumer electronic appliances, bags and clothing, to attract more foreign visitors and encourage shopping. But it is still behind Europe in terms of convenience. 

     Foreign visitors spent 1.4 trillion yen ($13.7 billion) in Japan last year. "Japan could be labeled as a hard place to shop," Arai said. To put visitors in a spending mood, the government needs to make duty-free procedures easier for shoppers to navigate.



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