Hundreds of thousands of small businesses and freelancers in Japan are very concerned. The reason is the new tax regulation that took effect last October 1st. This regulation is known as the Qualified Invoicing System, a new system decades in the making with the aim of enhancing transparency in the collection of consumption tax.

Before the introduction of the Qualified Invoicing System, small businesses in Japan with annual sales of less than ¥10 million were exempt from paying consumption tax. However, under the new system, these businesses are now required to issue qualified invoices, necessitating their registration with the tax office and payment of taxes.

The primary causes of concern revolve around the potential consequences, including the risk of losing transactions or facing demands for discounts equivalent to the amount of consumption tax. Additionally, the requirement to register with the tax office and pay taxes represents a significant shift in their financial obligations. A petition on Change.org opposing this regulation has already garnered nearly 450,000 signatures, and the protest has gained momentum on social media with the creation of the hashtag #STOPインボイス (STOP invoice) and the corresponding website stopinvoice.org

The new law is complex, and it is easy to see both sides of the argument. For freelancers and small businesses, this law essentially translates into a 10% tax increase. On the other hand, the system is designed to prevent “tax profit” (a situation where a portion of the tax does not reach the national treasury but remains with businesses) and enhance the transparency and fairness of each payment. To address these concerns, it is crucial for the government to provide comprehensive explanations about this new introduction and to strengthen its monitoring efforts to ensure that small businesses are not unfairly treated by more dominant business partners.