Consumption tax: simplified vs. general taxation | deemed purchase rate & how to choose

This is an English translation of our Japanese article. Rules and figures may change; the Japanese version and official sources are authoritative.

Last updated: June 14, 2026 / This article was prepared after checking materials published by the National Tax Agency (as of June 2026) (sources are noted in the text and at the end).

Taxable businesses that pay consumption tax have two ways to calculate the tax due: "general (standard) taxation (the principle method)" and "simplified taxation." Which one you choose can change the tax amount significantly, and whether it is advantageous or disadvantageous depends clearly on your line of business. In addition, the "20% special provision" for people who became taxable businesses because of the invoice system ends in September 2026, so deciding which method to choose afterward is also important. This article organizes the difference between the two calculation methods, the deemed purchase rate, how to choose, and the notification deadline.

Consumption tax / businesses

The difference between the two calculation methods

General (standard) taxation (the principle method)

Tax due = consumption tax on sales − consumption tax on purchases and expenses (actual amount)

A method that subtracts all the consumption tax on expenses you actually paid. Accurate bookkeeping, such as keeping invoices, is required.

Simplified taxation

Tax due = consumption tax on sales − (consumption tax on sales × deemed purchase rate)

Instead of calculating the consumption tax on expenses at the actual amount, it estimates it using a "deemed purchase rate" for each type of business. A business whose taxable sales in the base period (two years earlier) are ¥50 million or less can elect it by filing a notification in advance[National Tax Agency No.6505 (in Japanese)].

A comparison in numbers: service business (Category 5, deemed purchase rate 50%) / sales of ¥10 million excluding tax

Consumption tax on sales = ¥10 million × 10% = ¥1 million
・Simplified taxation: ¥1 million − (¥1 million × 50%) = pay ¥500,000
・General taxation (if the consumption tax on expenses is actually ¥300,000): ¥1 million − ¥300,000 = pay ¥700,000
→ In this example, simplified taxation saves ¥200,000. Conversely, for a business where the consumption tax on expenses comes to ¥600,000, general taxation (¥400,000) is more advantageous. The relationship is that the more your actual taxable purchases fall below the deemed purchase rate, the more advantageous simplified taxation becomes.

Deemed purchase rate (business categories under simplified taxation)

Business category	Main types of business	Deemed purchase rate
Category 1	Wholesale	90%
Category 2	Retail, agriculture/forestry/fishery (food and drink)	80%
Category 3	Manufacturing, construction, agriculture/forestry/fishery	70%
Category 4	Restaurants, etc. (businesses not classified elsewhere)	60%
Category 5	Services, transport/communications, finance/insurance	50%
Category 6	Real estate	40%

* The higher the deemed purchase rate (i.e., the larger the proportion you can subtract), the smaller the tax amount[National Tax Agency No.6509 (in Japanese)].

Deemed purchase rate by business type (simplified taxation)

Source: National Tax Agency No.6509 (business categories under the simplified taxation system)

Which is more advantageous? (a simple rule of thumb)

Simplified taxation tends to be advantageous

Types of business with few expenses (taxable purchases), such as service businesses
Your actual purchase ratio is lower than the deemed purchase rate
You want to keep the effort of bookkeeping down

General taxation tends to be advantageous

A year with capital investment or large purchases
You are in the red, or a consumption tax refund is expected
Your actual purchase ratio is higher than the deemed purchase rate

Under simplified taxation you cannot receive a consumption tax refund

Because simplified taxation estimates the amount starting from the "consumption tax on sales," no consumption tax refund arises even if you make a large capital investment. In a year when you plan a high-value investment, general taxation may be more advantageous.

The invoice "20% special provision" ends in September 2026

People who went from being tax-exempt businesses to taxable businesses because of the invoice system can, for the time being, use the 20% special provision (tax due = consumption tax on sales × 20%). However, this special provision ends with the taxable period that includes September 30, 2026 (Reiwa 8)[National Tax Agency, the 20% special provision (in Japanese)].

What to do after the 20% special provision ends

From October 2026 you will choose either general taxation or simplified taxation. At the same time, a new "30% special provision" for sole proprietors is also being considered. Because choosing simplified taxation requires filing a notification in advance, make your estimates before it ends. For an overview of the invoice system as a whole, see The invoice system and tax-exempt businesses.

Watch the notification deadline

To elect or stop simplified taxation, you must submit the "Notification of Election (Non-application) of the Simplified Consumption Tax System" by the day before the taxable period in which you want it to apply begins (for a sole proprietor, by December 31 of the previous year). As a rule you cannot switch back to general taxation partway through the year with "actually, let's go with general," and note also that simplified taxation requires continued application for two years.

FAQ

Which is more advantageous, simplified or general taxation?

Types of business with few expenses (taxable purchases) tend to find simplified taxation advantageous, while a year with capital investment or large purchases tends to favor general taxation. Compare the deemed purchase rate with your actual purchase ratio and run the numbers.

What are the conditions for choosing simplified taxation?

The conditions are that your taxable sales in the base period (two years earlier) are ¥50 million or less, and that you have submitted the notification of election of the simplified taxation system in advance. Once elected, continued application for two years is required.

Until when can the 20% special provision be used?

The 20% special provision for people who became taxable businesses because of the invoice system ends with the taxable period that includes September 30, 2026 (Reiwa 8). After that you choose general taxation or simplified taxation.

What is the deemed purchase rate when you have multiple types of business?

You divide sales by business category and calculate a weighted average of each deemed purchase rate. For sales that cannot be divided by category, the lowest deemed purchase rate applies.

Summary

General taxationConsumption tax on sales − consumption tax on expenses (actual amount). A refund is possible

Simplified taxationConsumption tax on sales × (1 − deemed purchase rate). Sales of ¥50 million or less + a notification

Deemed purchase rateWholesale 90 / retail 80 / manufacturing 70 / other 60 / services 50 / real estate 40%

20% special provisionEnds with the taxable period that includes September 30, 2026

Notification deadlineBy the day before the applicable taxable period (for individuals, the end of the previous year). Simplified taxation runs for two years

Reference links (sources)

This article is based on the following materials published by the National Tax Agency (neutral, primary sources). Because systems and special provisions are revised, please check the latest content before filing.

* This article is general information, not tax advice. For individual decisions, please confirm with a tax office or a tax accountant.