Foreign tourists expected to take up (some of) the slack in consumption

October 6th, 2014 by Philip Brasor & Masako Tsubuku

Everyday low prices: Duty Free store at Narita Airport

Everyday low prices: Duty Free store at Narita Airport

According to a survey of 12,000 tourists in 2013 carried out by the Tokyo Metropolitan Government, the Chinese spend more than any other group, which isn’t surprising. What is surprising is by how much they outspend other nationalities.

On average, a Chinese visitor spends ¥191,741 in Tokyo. The average spent by all foreign tourists in Tokyo is only ¥46,546, which means Chinese spend about three times as much.

After China, the most spent is by Singaporeans (¥135,377), and then Spaniards (¥129,558). Another notable aspect of Chinese spending is that the bulk is not spend on accommodations or dining, but rather on souvenirs, about ¥122,000. The most popular area for Chinese shoppers is Ginza, because that’s where all the luxury brand stores are.

The government wants them to spend even more, and is thus expanding the list of items that foreign tourists can buy without having to pay consumption tax. Previously, consumables like food, liquor and cosmetics were not exempt from CT when bought by foreign tourists at stores in Japan, but since Oct. 1 they are.

The main beneficiary of this new regulation is department stores, which have been doing badly since the consumption tax went up in April. One of the reasons consumables weren’t exempt before was that there was no way to check if the items were consumed in Japan or overseas, and anything consumed in Japan should be subject to tax. But many Chinese buy food and liquor in Japan as souvenirs for relatives and friends.

The discount is given at the point of purchase, which means the store has to be registered to waive the consumption tax. They check the buyers passport to make sure he or she is not a Japanese national. Technically, the item can be checked at the airport to make sure it wasn’t consumed before leaving the country, but that sounds almost impossible to do.

At present foreign tourism is one of the only bright spots in terms of revenues. In August, spending by foreign tourists was 40 percent more than it was last August, and ¥4.7 billion of it was spent in department stores alone. These numbers will probably go up more now that the yen is dropping.

The Ministry of Economy, Trade and Industry estimates that the new duty-free rule will mean a loss of ¥9 billion in CT revenues for the year, but it will also mean a boost in sales of about ¥78 billion, which means it will make up for at least some of the domestic consumption that was lost after the tax increase was implemented.

The duty free system was established in the early 1950s, when less than 40,000 foreign tourists visited Japan in a year. Department stores have always been lobbying the government to expand the list of exempt items, even though administering the system is bothersome for retailers, as well as for tourists, who have to fill out forms. METI is thus thinking of streamlining the system even more by 2020, when the Olympics will be held. At present 5,777 stores belong to the duty-free system.

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4 Responses

  1. I would really love to see a breakdown of these “souvenirs” purchased by Chinese tourists in Japan. Because I have a strong suspicion that the vast majority of that figure is in fact luxury items purchased from foreign (non-Japanese) brands with large shops in Tokyo (LVMH etc). Most of which only profit the country they originate from (the handful of local employees in sales and management aren’t exactly going to pull the Japanese economy on their own).

    Considering the Japanese government now does not even get VAT on these items, it would not sound like a particularly great news in terms of trade and national budget.

  2. I wonder why they don’t use the same system as the GST refund scheme in Australia. You pay full price (tax included) at the store, and get a receipt that shows how much tax you paid. When you get to the airport on your way out, you present the goods and the receipt at the refund counter (thus showing that they are in fact leaving the country), and get refunded the tax you paid then and there (either in cash or to your credit card, I believe).

    Seems like it would solve a lot of problems, and would also mean less work for the stores and store clerks.

  3. The article has an error.

    It claims that “Chinese spend about three times as much” as other foreign tourists (¥191,741 vs. ¥46,546).

    However, the data from the actual report (see page 26 of link below) clearly indicates that the average spent by all foreign tourists in Tokyo was Y114,519, not the indicated Y46,546.

    The Y46,546 figure is the average spent by all foreigners on *souvenirs.* So Chinese tourists spend about three times as much on souvenirs than other foreign tourists (about ¥122,000 vs. ¥46,546).

    Link to report:
    http://www.metro.tokyo.jp/INET/CHOUSA/2014/09/DATA/60o99102 .pdf

  4. Apparently now Japan and the whole world cannot live without Chinese spending. Strangely we managed to do really well without them for the past century. For some strange reason now, me, you, my family and all of us really really need a bunch of Chinese people to spend their money and buy from us. Yup. Western society completely failed but luckily the results of dictatorial capitalist-comunism are saving us.

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