Japan firms to use e-book tax loophole

Japan firms to use e-book tax loophole

Japanese online booksellers are planning to circumvent sales tax collection by selling digital books into the country from abroad.

According to the Nikkei newspaper, selling e-books from outside Japan to Japanese customers will enable companies such as Kobo owner Rakuten and other e-commerce firms to avoid paying Japanese consumption tax, currently set at 5%.

The move is in response to the government's controversial plans to hike Japan's consumption tax to 10% or 15% later this year.

Rakuten, which is launching Kobo in Japan in July, will use the Toronto-based online library at Kobo.com to start selling Japanese titles to Japanese customers. As the sales will be counted as exports to Japan they will attract no tax.

"The Rakuten move makes it clear to any Japanese domestic company that unless they go international, they can expect Rakuten and others to walk all over them in terms of pricing," Terrie Lloyd, publisher and c.e.o. of Tokyo-based LINC Media, told The Bookseller. "Indeed, customers could conceivably be buying digital books at prices less than wholesale to the local resellers."

Although digital sales have been modest in Japan, they are expected to rise sharply when the Kobo and Kindle e-readers for the Japanese market are both launched this year. The Japanese e-book market in 2011 rose 7.9% year on year to ¥72.3bn (£580m), according to the Yano Research Institute. This represents about 6.5% of the entire ¥1.11 trillion (£8.9bn) books market.