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 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.1 A major holdup was the concern over a supposed2 ¥7 trillion to ¥8 trillion gap ($47 billion to $54 billion) in government coffers that would result from the change. As this 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’ve 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’s a stretch. Even at the 60 million tourists expected by the end of the decade, authorities would need to levy around $850 a person to make it work. But my thought experiment did nonetheless turn up a surprising chunk of change.
Visitor Conservation Levy
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’s paltry, though reports say it may 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, it was recently tripled to NZ$100, while an annual report shows just how the money has been used.
Like airlines fuel surcharges, tourists will stomach fees that can’t be avoided. Japan can approach this like a Netflix Inc. or Disney+ subscription — once a bargain, users are now hooked, so it’s time to start gradually ratcheting up prices.
I propose a tourist tax rising in stages to ¥9,000 ($60) by 2030, resulting in an additional ¥540 billion in revenue.
Look to Hawaii
Tourist spending on accommodation has almost doubled since 2019, with no impact on demand. That suggests there’s 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’s still less than $1.50 a night. With recent data showing that more than half of all rooms in the capital are occupied by tourists, it’s time to increase that.
Even the ski haven of Niseko levies just 2% on stays, while the broader Hokkaido region will soon introduce a tax capped at just 500 yen a night. By comparison, Hawaii charges nearly 18%. Barcelona is doubling a tourist charge on accommodations to €15. The likes of Rome and Paris both charge €10 or more.
Residents showing proof of address should be exempted. A 10% average tax on the ¥4.8 trillion yen on hotel spending we might expect in 2030, based on 2024 figures, would give us 480 billion yen.
No Rebates
Tourists can claim back the 10% consumption tax on purchases over 5,000 yen, a scheme retailers love, since it otherwise goes straight to the government.
But 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 will 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 may restore it. But at the very least, the minimum spend should be lifted: Australia’s Tourist Refund Scheme requires spending of A$300, six times Japan’s.
Taking one estimate of 1.2 trillion yen in tax-free spending and applying the 10% levy would give us another 120 billion yen.
Left-field Ideas
In theory, we’ve generated some $7.5 billion in revenue, but we’re still well off plugging the hole. More creativity is needed — perhaps charging foreigners more to access World Heritage sites.3 Cities like Kyoto could look to solutions for overcrowding from the private sector — think of Universal Studios theme park in neighboring Osaka, which uses financial incentives like fast passes and dynamic pricing to alleviate clogged areas.
Longer stays are also too cheap: Japan might not able to charge $5 million for President Donald Trump’s “gold card” visas, but it is becoming a highly desirable location for many, particularly wealthy Chinese. That’s a potential revenue stream. For what it’s worth, becoming a permanent resident costs just $50, while countries like Australia or the US charge around 20 times that. (And taking citizenship is free!)
A related debate that will likely get louder4 is how Japan has some of the laxest regulations in Asia on buying property. It not only doesn’t tax foreigners as a disincentive, as in places like Singapore, it doesn’t even require residency to buy land. That’s 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 can’t solve all of Japan’s revenue shortfalls. But for a country that offers so much, it’s fair to charge a little bit more.
1. The Democratic Party for the People wanted the threshold lifted from the current ¥1.03 million to ¥1.78 million, with a figure of ¥1.6 million eventually getting approval.
2. The calculations this gap is based on haven't been revealed, leading some to suspect the Finance Ministry is being too cautious.
3. Since that story came to the fore last year, Himeji has finalized its plans, and will charge double the fee for all non-residents of the city.
4. See, for example, this recent tweet from former soccer star and now investor Keisuke Honda.
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