Challenges Ahead for Sole Proprietors! The Complex World of ‘Fixed Tax Reduction’ Starting in June – Confusion Looms Over Short-Lived System

“Just finished filing my first tax return after the start of the ‘invoice system’…”

The first tax return after the start of the invoice system has just been filed, but next month, in June, a “flat-rate tax reduction” will begin.

This new system, which was created in response to soaring domestic prices, offers a total tax reduction of 40,000 yen (30,000 yen for income tax and 10,000 yen for inhabitant tax) from one’s salary, but the application rules and application process are complicated, and confusion is inevitable, according to the company.

However, the application rules and application procedures are complicated, and confusion is inevitable, according to Mr. Shinya Yamada, an otaku accountant well known for his YouTube channel, “Otaku Accountant Ch [Shinya Yamada] Slightly Benefit with Money.

Salaried workers are also eligible… The application rules and application process are complicated, and only you can spot mistakes!

The flat-rate tax reduction is a truly riddle system, with complicated and troublesome calculations, and it only takes one year to complete (smiles). For company employees, it starts in June of this year, but for pensioners, it starts in two phases, June (income tax reduction) and October (inhabitant tax reduction), and for most sole proprietors, it is done on their tax return next year.

In addition, generally, a small amount of the tax reduction will be deducted from the monthly salary, but if the total amount of the tax reduction is less than 40,000 yen, it is planned to be paid out in the form of a benefit. However, the details of that benefit have not yet been announced. Furthermore, since this is an irregular system that will only be in place for one year, confusion and mistakes on the part of the local government can be expected, but only the applicant will be able to notice them. I think it’s better to start studying now.”

In addition to his Otaku Accountant YouTube channel, Mr. Shinya Yamada is the chairman of Entertainment Culture Tax Corporation, an accounting firm specializing in the entertainment industry, as well as an author and a member of the government’s administrative reform committee.

He says this year’s tax return, the first since the start of the invoice system, is better.

The invoice system has been difficult in its own way, but it is a system that will continue to be used in the future,” he said. There were some changes in interpretation right after it started, which made it a little rough, but there is hope that it will be improved little by little and that the process itself will become easier when it is computerized someday.

Besides, thanks to the benefit system that was created with Corona, this industry has been busy with something every year, and this year it seems like the benefit system just changed to an invoice system. So for us, this year’s flat-rate tax cut is more daunting (laughs).”

With less than a month to go before the start of the new system, even accounting professionals are still scratching their heads over the new flat-rate tax reductions.

The first tax return after the start of the invoice system was…

This year, our office handled about 250 tax returns. Since most of our clients are sole proprietors with sales of 10 million yen or more, more than 90% of them were registered for the invoice system.”

As far as the field of tax returns is concerned, those who have not yet registered for the invoice system are as usual, while those who have registered for the invoice system (including corporations) had different difficulties depending on the taxation system to be applied.

For those registered under the invoice system (including corporations), the difficulties differed depending on the taxation system applied. “There are three calculation formulas for filing consumption tax returns: regular taxation, simplified taxation, and the 20% special exception. However, since most of our clients were either simplified taxation or 20% special exception, it was not that much of a hassle. Overall, we had to do more entry and confirmation work for the added items, so I would say it was about a 1.5-fold increase in time.

What left an impression on me was the wide variation in understanding among the creators, and the fact that many of them could not issue qualified invoices correctly. Some were supposed to be registered in the invoice system but did not fill in their registration number, some did not fill in their tax rate, or on the contrary, they filled in the wrong tax rate. …… There were a lot of small errors and a lot of questions from our corporate clients.”

The reason for the confusion was a lack of understanding of the sales tax… Next year, tax payments will be four times higher than this year!

Many others were unaware that the invoice only applies to the three months from October to December for this tax payment,” said Yamada.

Some customers told us after paying the tax, ‘You will pay this amount of tax next year, too, right? When I told them that the amount for this year is for three months, so next year it will be four times as much, they asked me if I wanted to cancel their registration for the invoice system. I found a way to cancel the registration starting the following month, so I consulted my fellow tax accountants and uploaded the video to YouTube at the end of March, and received many appreciative comments. I was surprised at the number of people who wanted to cancel their registration.”

This is how he realized that many people lack knowledge about consumption tax before understanding the invoice system, and that this is something that needs to be improved.

As a matter of course, the invoice system is more than just registering and issuing a qualified invoice,” he said. You become a taxpayer, so you also need to know about consumption tax. You need to know about “tax inclusive accounting,” “tax exclusive accounting,” “rebate calculation,” “pile-up calculation,” and so on. The consumption tax rates have been 10% and 8% since Reiwa 2028, but the national consumption tax is usually 7.8% (the remainder is 2.2% for local areas), while the reduced tax rate is 6.24% (the remainder is 1.76% for local areas), because the calculation is divided between the national and local governments.

So it is true that the e-Tax only says ‘reduced tax rate of 6.24%’ instead of the familiar ‘reduced tax rate of 8%’ in the national sales tax filing section.

Unfortunately, I guess they don’t take into account people who aren’t familiar with the sales tax,” said Mr. Kato. In addition, there is a method called ‘appropriation,’ in which the refund is used to pay taxes, but it is not well known to many people. I thought that the government needs to widely disseminate information about consumption tax, including explanations of such matters.

Invoice Registration” to be reconsidered Necessity of

Finally, we asked them about their hopes for private business owners, companies, and the government.

I would like those who have not yet registered for the invoice system not to do so out of a sense of urgency. Each person’s situation is different, so I think it is enough to think about it if your business partner asks you about it. In addition to my YouTube channel, there are many books and blogs that explain the invoice system and consumption tax.

For companies, he has a request for companies involved in all kinds of invoices, especially those that mainly sell online.

I would like to see an extension of the period for storing and verifying purchase histories,” he said. Although the electronic bookkeeping revision has made it unnecessary to download to some extent, purchase histories disappear after one or two years in many places except for major online shopping. At the very least, I would like them to keep it for the seven years stipulated by the government.”

The final request is to the government. It could be said that this is a wish not only from Mr. Yamada and other tax accountants, but also from the public.

I would like the government to spread knowledge of the consumption tax and expand the special exception for small amounts. I would like the government to continue the provision that sales of less than 100 million yen do not require an invoice for sales of less than 10,000,000 yen, and if possible, to eliminate the requirement for sales of less than 100 million yen. I would like to see the requirement that invoices are not required for sales of less than 10,000 yen, but rather less than 30,000 yen. Just by making this change, accounting work would become much easier, and I don’t think tax revenues would change that much.

The number of side hustles and freelancers is increasing these days. If the government is also supporting these activities, efforts should be made to communicate the tax laws. We also need to understand the tax laws because paying taxes is a duty of citizens. Both sides need to come to a compromise.

One way is to look at the IRS website to find out what tax laws and systems are relevant to you, but frankly speaking, I think it is difficult for everyone to understand them properly. Besides, there are a variety of cases, so I would like to see an effort to provide individualized support. If it is difficult to educate and provide individualized support for such tax laws, I would still like you to consider expanding the special exception for small amounts and continuing the 20% exception.”