Two different stories have played out in Japan at very distinct paces over recent months.
First, a long-running debate over the amount workers must earn before paying tax. Such policy anywhere can be a snoozefest, and nowhere more so than in Japan. Embattled Japanese Prime Minister Shigeru Ishiba, needing the support of an opposition party that made raising the tax-free threshold its signature policy, has endured months of back-and-forth debate.
The passing of the budget this week put us out of our misery. A major holdup was the concern over a supposed ￥7 trillion to ￥8 trillion gap (US$47.29 billion to US$54.04 billion) in government coffers that would result from the change. As that debate rumbled, the unstoppable surge of tourists continued, hitting a record 3.7 million in January. Local discontent at the sheer volume of sightseers is growing, too.
The disconnect got me thinking how cheap Japan can be for visitors, even as residents face one of the world’s higher tax burdens. I have long advocated to better monetize the tourism boom, so I wondered: How much of that shortfall could be made up by charging them more?
It is a stretch. Even at the 60 million tourists expected by the end of the decade, authorities would need to levy about US$850 a person to make it work. However, my thought experiment did nonetheless turn up a surprising chunk of change.
First, Japan needs to tax visitors themselves. A departure fee was begun in 2019, levied on everyone leaving the country, including residents. At just ￥1,000, it is paltry, although reports said it might be raised by up to five times.
Authorities can go further, though — especially by making it an explicit tax paid by visitors on arrival. Look at New Zealand, which introduced its “International Visitor Conservation and Tourism Levy” in 2019. At first NZ$35 (US$19.99), it was recently tripled to NZ$100, while an annual report showed just how the money has been used.
Similar to airlines fuel surcharges, tourists would stomach fees that cannot be avoided. Japan can approach that like a Netflix Inc or Disney+ subscription — once a bargain, users are now hooked, so it is time to start gradually ratcheting up prices.
I propose a tourist tax rising in stages to ￥9,000 by 2030, resulting in an additional ￥540 billion in revenue.
Tourist spending on accommodation has almost doubled since 2019, with no impact on demand. That suggests there is plenty being left on the table, or flowing to the coffers of largely foreign-run hotel chains that are easily able to raise prices.
A hotel tax is an obvious move. Tokyo first introduced such a scheme in 2002, but it is still less than US$1.50 a night. With recent data showing that more than half of all rooms in the capital are occupied by tourists, it is time to increase that.
Even the ski haven of Niseko levies just 2 percent on stays, while the broader Hokkaido region would soon introduce a tax capped at just ￥500 a night. By comparison, Hawaii charges nearly 18 percent. Barcelona is doubling a tourist charge on accommodations to 15 euros (US$16.25). The likes of Rome and Paris charge 10 euros or more.
Residents showing proof of address should be exempted. A 10 percent average tax on the ￥4.8 trillion on hotel spending we might expect in 2030, based on last year’s figures, would give us ￥480 billion.
Tourists can claim back the 10 percent consumption tax on purchases higher than ￥5,000, a scheme retailers love, since it otherwise goes straight to the government.
However, locals hate it. More than 35 years after sales tax was first introduced, it remains incredibly unpopular, and reducing it is a regular promise of opposition parties. Locals wonder why tourists are exempted, amplified by stories of fraud by reselling wares within its shores. The country would shift to a new system in 2026, where visitors pay first, then claim back at the airport.
Eliminating the discount entirely seems risky — the UK removed its VAT rebate in 2021, but might restore it. At the very least, the minimum spend should be lifted: Australia’s Tourist Refund Scheme requires spending of A$300 (US$189.15), six times Japan’s.
Taking one estimate of ￥1.2 trillion in tax-free spending and applying the 10 percent levy would give us another ￥120 billion.
In theory, we have generated about US$7.5 billion in revenue, but we are still well off plugging the hole. More creativity is needed — perhaps charging foreigners more to access World Heritage sites. Cities such as Kyoto could look to solutions for overcrowding from the private sector — think of Universal Studios theme park in neighboring Osaka, which uses financial incentives such as fast passes and dynamic pricing to alleviate clogged areas.
Longer stays are also too cheap: Japan might not able to charge US$5 million for US President Donald Trump’s “gold card” visas, but it is becoming a highly desirable location for many, particularly wealthy Chinese. That is a potential revenue stream. For what it is worth, becoming a permanent resident costs just US$50, while countries such as Australia or the US charge about 20 times that. (And taking citizenship is free!)
A related debate that would likely get louder is how Japan has some of the laxest regulations in Asia on buying property. It not only does not tax foreigners as a disincentive, as in places such as Singapore, it does not even require residency to buy land. That is one reason some sought-after central neighborhoods are becoming prohibitively expensive which, combined with Japan’s anemic wage growth, helps contribute to a grumbling sense that citizens are getting a bum deal.
More foreigners in every facet of life is going to be a reality going forward. So policymakers need to get out of old ways of thinking, when the country was considered expensive, and visitors needed multiple incentives. Despite our best efforts here, tourism dollars cannot solve all of Japan’s revenue shortfalls. However, for a country that offers so much, it is fair to charge a little bit more.
Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia and was the Tokyo deputy bureau chief.
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