"If my sales are ¥11 million (tax included) and my expenses are ¥3.3 million (tax included), how much consumption tax will I be charged?" — this is a question we often hear from sole proprietors and freelancers. There is not just one answer. Even on the premise that you are a taxable business, the consumption tax you pay varies from ¥200,000 to ¥700,000 depending on the calculation method you choose. This article calculates, using these exact figures, the four methods — the general method, the simplified method, the 20% special provision, and the 30% special provision — starting from the idea of breaking a tax-included amount down into a tax-excluded one.
First, a quick-reference table: the consumption tax in this case
Here is what happens when sales of ¥11 million (tax included) and expenses of ¥3.3 million (tax included) are calculated by the four methods (per year, approximate).
| Calculation method | Consumption tax (per year, approx.) | Who can use it |
|---|---|---|
| General method (the principle) | ¥700,000 | All taxable businesses |
| Simplified method (service industry, Type 5) | ¥500,000 | Sales of ¥50 million or less + notification |
| Simplified method (manufacturing/construction, Type 3) | ¥300,000 | Same as above |
| 20% special provision | ¥200,000 | Those who went from tax-exempt to taxable due to the invoice system (through the 2026 tax year) |
| 30% special provision | ¥300,000 | Sole proprietors, same as above (2027 and 2028 tax years) |
Even with the same sales and expenses, this much difference arises depending on your position and the method. Below we calculate each one in turn.
The big premise: who pays consumption tax in the first place
The one who pays consumption tax is a taxable business. A person who meets either of the following becomes a taxable business[National Tax Agency No.6501 (in Japanese)].
- A business whose taxable sales in the base period (two years prior) exceed ¥10 million (automatically a taxable business)
- A person who has registered as an invoice (qualified invoice) issuer (a taxable business regardless of sales)
¥11 million tax included is exactly ¥10 million when tax-excluded. The tax liability is judged by the taxable sales two years prior (the base period), and it is judged on a tax-included basis (¥11 million) if that year you were tax-exempt, and on a tax-excluded basis (¥10 million) if you were a taxable business. In the former case, exceeding ¥10 million makes you a taxable business; in the latter, ¥10 million exactly does not "exceed" it and you stay tax-exempt — so the conclusion diverges. This article calculates the consumption tax amount on the premise that "this year you are a taxable business (or already invoice-registered)."
The starting point of the calculation: breaking a tax-included amount down into a tax-excluded one
Calculating consumption tax starts by dividing sales and expenses into the "base price" and the "consumption tax." Dividing the tax-included amount by 1.1 gives the tax-excluded (base) amount.
This ¥1 million is the "consumption tax received" (provisional tax received). It is money you receive from customers and will eventually pay to the state.
This ¥300,000 is the "consumption tax paid" (provisional tax paid). It is the consumption tax you bear when paying for purchases and expenses.
What you can subtract is only expenses on which consumption tax is charged (taxable purchases). Items such as salaries and bonuses, social insurance premiums, taxes (public dues), insurance premiums, and interest on borrowings are outside the scope of consumption tax, and no matter how much you pay, they cannot be subtracted. To keep the calculation clear, this article assumes all ¥3.3 million of expenses are taxable purchases. The more labor-cost-heavy the business, the smaller the consumption tax you can actually deduct.
* If you have sales or purchases at the reduced 8% rate, such as food and drink, the rate differs. Here we calculate at the standard 10% rate.
1. General method (the principle method): ¥700,000
The general method is the most straightforward way: subtract the consumption tax actually paid from the consumption tax received[National Tax Agency No.6351 (in Japanese)].
Because you subtract the consumption tax on expenses at its actual amount, the more expenses (taxable purchases) you have or the larger your capital investment in a year, the smaller the tax payment. Conversely, if you are mostly labor-cost-based with few taxable purchases, the tax payment increases. Keeping invoices and accurate bookkeeping are required.
* In practice, because it is split into a national portion of 7.8% and a local portion of 2.2% with rounding, differences of a few hundred to a few thousand yen arise. This article gives rough estimates.
2. Simplified method: determined by industry (expenses are irrelevant)
The simplified method does not look at actual expenses; it estimates by multiplying the consumption tax on sales by a "deemed purchase rate" set for each industry. The result does not change whatever the ¥3.3 million of expenses may be. It can be chosen by a business whose taxable sales in the base period are ¥50 million or less and that has filed a notification in advance[National Tax Agency No.6505 (in Japanese)].
Calculating this case (¥1 million of consumption tax on sales) by industry gives the following[National Tax Agency No.6509 (in Japanese)].
| Business classification | Main industries | Deemed purchase rate | Payment in this case |
|---|---|---|---|
| Type 1 | Wholesale | 90% | ¥100,000 |
| Type 2 | Retail, agriculture/forestry/fishery (food and drink) | 80% | ¥200,000 |
| Type 3 | Manufacturing, construction | 70% | ¥300,000 |
| Type 4 | Restaurant business, etc. | 60% | ¥400,000 |
| Type 5 | Services, transport, finance and insurance | 50% | ¥500,000 |
| Type 6 | Real estate | 40% | ¥600,000 |
On the other hand, for manufacturing (Type 3, 70%), ¥1 million × 30% = ¥300,000. The relationship is that the smaller your actual taxable purchases are compared with the deemed purchase rate, the more advantageous the simplified method. The details of the concept are explained in The simplified method vs. the general method for consumption tax.
* The simplified method requires a prior notification, and once chosen it applies continuously for two years. Even with a large capital investment, you cannot receive a consumption tax refund.
3. The 20% special provision: ¥200,000 (through the 2026 tax year)
People who went from tax-exempt to taxable in connection with the invoice system can, for the time being, use the 20% special provision (payment = consumption tax on sales × 20%)[National Tax Agency, 20% special provision (in Japanese)].
Its advantage is that no expense tallying and no notification are required — you can calculate with sales alone. Among the four methods, it results in the smallest tax payment.
The 20% special provision can be used through the taxable period that includes October 1, 2023 to September 30, 2026. For a sole proprietor, the 2026 tax year (Reiwa 8, filed in March 2027) is the last. Also, because the 20% special provision requires that taxable sales in the base period be ¥10 million or less, in a year when the base period was tax-exempt with sales of ¥11 million (tax included), the judgment comes to over ¥10 million and you may fall outside the scope.
4. The 30% special provision: ¥300,000 (individuals, 2027 and 2028 tax years)
After the 20% special provision ends, a 30% special provision was newly established for sole proprietors. In the filings for the 2027 and 2028 tax years (Reiwa 9 and 10), you can set the payment at consumption tax on sales × 30%. Eligible are "sole proprietors who went from tax-exempt to taxable through invoice registration and whose taxable sales in the base period are ¥10 million or less"[National Tax Agency, FY2026 tax reform (in Japanese)].
It rises a little from the 20% special provision (¥200,000), but it is more advantageous than the general method (¥700,000) and than the simplified method for many industries. It can be used as a transitional measure for the 2027 and 2028 tax years.
In the end, which one should you choose in this case?
If the 20%/30% special provisions are available, top priority
- Those who went from tax-exempt to taxable via the invoice system: the 20% special provision (¥200,000, through the 2026 tax year)
- Sole proprietors: the 30% special provision (¥300,000) for the 2027 and 2028 tax years
- Can be calculated with sales alone, and no notification is required
If the special provisions are unavailable or have ended
- Estimate and compare the simplified method (¥100,000–¥600,000 in this case) and the general method (¥700,000)
- Industries with few expenses / taxable purchases tend to find the simplified method advantageous
- In a year with a large capital investment, the general method (possibility of a refund)
To use the simplified method, a notification is required by the end of the previous year of the year you want to apply it. In line with the end of the special provisions, estimate early.
The consumption tax you paid, and the timing of payment
The consumption tax you paid becomes a necessary expense (public dues) for income tax purposes (in the case of tax-included accounting). Because you pay consumption tax, the next year's income tax and residence tax go down a little. You can also check a rough figure for your own income tax with the tax calculation tools.
A sole proprietor's consumption tax filing and payment deadline is March 31 of the following year (a little after the income tax deadline of March 15). If the previous year's consumption tax amount is above a certain level, an interim return (estimated tax payment) is required during the year. You can check the payment months in the tax calendar.
FAQ
If my sales are ¥11 million (tax included), do I definitely have to pay consumption tax?
Not necessarily. The consumption tax liability is judged by the taxable sales two years prior (the base period). If that year you were tax-exempt, it is judged at ¥11 million (tax included), which is over ¥10 million, so you become a taxable business; if you were a taxable business, it is judged at ¥10 million (tax excluded), which does not "exceed" the threshold, so you stay tax-exempt — the two diverge. However, if you are invoice-registered, you are a taxable business regardless of sales.
Can the full ¥3.3 million of expenses be used for the consumption tax deduction?
No. What you can subtract is only expenses on which consumption tax is charged (taxable purchases). Salaries, social insurance premiums, taxes, insurance premiums, interest on borrowings, and the like are outside the scope and cannot be subtracted. For clarity, this article assumes the full amount is taxable purchases.
Which calculation method is most advantageous in this case?
If the 20% special provision is available, ¥200,000 is the smallest (through the 2026 tax year). Sole proprietors can use the 30% special provision at ¥300,000 for the 2027 and 2028 tax years. If the special provisions are unavailable, estimate the simplified method (¥100,000–¥600,000) and the general method (¥700,000) according to your industry and choose the more advantageous one.
When do I pay consumption tax?
For a sole proprietor, March 31 of the following year is the filing and payment deadline. If the previous year's consumption tax amount exceeds ¥480,000, an interim return (estimated tax payment) is required during the year.
Summary
Reference links (sources)
This article is based on the following National Tax Agency published materials (neutral, primary sources). Rates and special provisions are subject to reform, so please check the latest content before filing.
- National Tax Agency No.6351 How to calculate the tax payable (general method) (in Japanese)
- National Tax Agency No.6505 The simplified taxation system (in Japanese)
- National Tax Agency No.6509 Business classifications under the simplified taxation system (in Japanese)
- National Tax Agency No.6501 Exemption from tax liability (the base period and the judgment) (in Japanese)
- National Tax Agency Overview of the 20% special provision (in Japanese)
- National Tax Agency FY2026 tax reform feature (invoices and the 30% special provision) (in Japanese)
* This article is general information, not tax advice. For individual decisions, please confirm with a tax office or a tax accountant.