Some transitional measures have been introduced as part of the reform program to address the treatment of the consumption tax rate increases in relation to certain types of transactions, both for the increase from 5 to 8 percent and from 8 to 10 percent.
Transitional measures are applicable for the rate increase from 5 to 8 percent for the following types of supplies:
- supply of services to multiple and unspecified persons (e.g. passenger fares, admission fees for movies/theatres)
- supply of electricity, gas, water and telecommunications services, etc.
- construction works
- supply of certain services (for certain contracts)
- leasing of assets
- long-term installment sales (where taxable sales are recognized based on a deferred payment basis)
- long-term large scale construction works (where taxable sales are recognized on a percentage of completion basis)
- subscription sales, e.g. books/ magazines/mail order sales etc.
Transitional measures for the increase in the consumption tax rate from 8 percent to 10 percent will be applied to the same transactions as above, except for the measure on subscription sales, e.g. books/ magazines/mail order sales which has not been introduced.
KPMG welcomes the guidance from the Authorities on these supplies which may span the change in rate. The rules regarding the transitional measures can be complex to apply, therefore we recommend businesses analyze whether these rules are likely to impact their transactions. Similarly businesses may wish to consider if there are any opportunities for consumption tax planning regarding the rate change, or in relation to the increased burden of the higher consumption tax rate in general.