Tokyo Report: Abuse of Consumption Tax Refunds Increasing

Tokyo, June 15 (Jiji Press)--Japan's tax authorities are stepping
up their crackdown on illegal abuse of the system for exempting exporters
from consumption tax.

In principle, consumption tax is levied on goods and services sold
in Japan but does not apply to exports. Therefore, when a company exports
goods it subsequently files a refund claim with a tax office for the
consumption tax it paid at the time the items were procured.
Tax refunds are also available for duty-free shops that sell goods
to foreign tourists.
Abuse of the system is increasing. For example, in December last
year the owner of an optical equipment exporter in Tokyo was indicted for
receiving a refund of 24 million yen for a faked export deal.
The number of charges brought for abuse of the system totaled 15 in
fiscal 2007, which ended on March 31, 2008, up from five the previous year.
In addition to the increasing number of illegally obtained refunds,
the scale of the abuse has sharply expanded in many cases.
Executives of a company in the southwestern Japan city of Fukuoka
were arrested in November 2007 for receiving refunds totaling 670 million
yen, compared with less than 100 million yen in most cases, by pretending to
have sold gold bullion to tourists from South Korea.
Among other noticeable cases, the president of a jewelry company in
Kobe, western Japan, was arrested in February 2008 for an illegal refund of
210 million yen.
Refund claims have continued to increase sharply in recent years.
In fiscal 2007 alone, some 156,000 claims were filed and refunds totaled
2.75 trillion yen.
Tax offices are legally required to make refunds as quickly as
possible. If an undue delay occurs, the office concerned must pay interest
on the refund. But the difficulty of examining the huge number of claims in
detail leaves room for abuse.
But the National Tax Agency is cracking down on abuse of the refund
system more strictly than on other types of tax-related fraud. The practice
is "extremely malignant," as it cheats on state coffers, says a senior
agency official.
In fact, the consumption tax system could be shaken to the core if
such abuse is practiced more widely.
Since large-lot fraud involving the refund system increased in
fiscal 2007, the agency has continued to strengthen its screening process in
a bid to uncover even small-scale violations.