To smoothly carry out the consumption tax hike set for next October, it is essential to make effective use of tax cuts.
The Liberal Democratic Party and its coalition partner Komeito have decided on the outline of their tax system revisions for fiscal 2019.
To prevent an economic downturn brought on by the consumption tax increase, the ruling parties have incorporated generous incentives for people purchasing automobiles and housing. The envisaged tax cuts amount to about 170 billion yen a year. The intention of the measures is understandable.
For those related to automobiles, the automobile tax, which is levied every year, will be reduced by up to 4,500 yen per vehicle for people who purchase a car from next October onward.
Up to 3 percent of a vehicle's purchase price will be collected as the "environmental performance tax," which will be introduced in place of the automobile acquisition tax. The new tax rate will be 1 percentage point lower over one year following the consumption tax rise.
As for tax breaks for people applying for mortgages, the period in which income tax deductions and other discounts are given will be extended from the current 10 years to 13 years. Housing units bought at the consumption rate of 10 percent with contracts completed by the end of 2020 will be subject to the tax credit.
After the consumption tax was raised to 8 percent in April 2014, the drop in personal consumption became prolonged, thus pulling down the economy.
To cover the ever-increasing social security costs, consumption tax is a stable fiscal resource that is secured through tax burdens shared widely and lightly by society. For consumption tax to be steadily raised, it is imperative that consumption is sustained by working out various support measures.
Avoid excessive incentives
Needless to say, taking into account the severe fiscal conditions, it makes sense to avoid excessive tax cuts. In the fiscal 2019 budget that will be approved by the government shortly, about 2 trillion yen will be allotted for measures geared toward the planned consumption tax increase. It is necessary to scrutinize whether this is appropriate in relation to the size of the budget.
The core of the compensatory measures for the consumption tax hike is the introduction of reduced tax rates. The tax rate will be kept at 8 percent for food and drinks -- excluding alcohol and dining out -- and newspaper subscriptions. This will prove effective in easing the burden of the tax hike.
Reduced tax rates are prevalent in European countries, but this will be the first time a reduced tax rate system has been introduced in Japan. To prevent confusion in stores, the government is called on to clarify the rules on the application of reduced tax rates and work toward making them widely known.
From October 2023, business operators will be obliged to issue invoices recording consumption tax amounts and tax rates. This will lead to eliminating the so-called tax profits retained by business operators from tax paid by consumers. It is highly significant that the step will contribute to ensuring fairness in tax collection.
The tax system revision outline has put forth a policy to facilitate business succession in self-employed enterprises. Payment of inheritance and gift taxes will be granted a moratorium when land and facilities owned by such businesses are inherited by the next generation.
An increasing number of shops and factories managed by self-employed operators have been closed or suspended due to the difficulty of securing successors. If the situation is left unaddressed, it may advance the hollowing out of industry even further. The government and municipalities, in cooperation with regional banks and other organizations, should further focus on assistance measures for business succession.
(From The Yomiuri Shimbun,
Dec. 16, 2018)
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