It is only about a year until the planned increase of the consumption tax rate to 10 percent takes effect on Oct. 1 next year. Both the government and private sector must steadily make preparations to enable a smooth tax increase.
The government has postponed the increase to 10 percent twice out of consideration for the nation's economy. Japan's finances are in critical condition. The consumption tax is a source for the stable funding of inflating social security expenses. This time, preparing an economic environment to enable a stable tax increase is a must.
The economy is steadily improving and if this trend is to continue until the end of this year, the period of economic expansion will have been as long as the longest period we've seen after World War II. Provided we do not experience hereafter an economic downturn on the scale of that which followed the collapse of Lehman Brothers, it is required that the tax rate be raised as scheduled.
The government and the Bank of Japan must be quick to achieve sustainable economic growth and completely break away from deflation.
Consumption declined and stayed sluggish after the tax rate was raised to 8 percent in April 2014. In order for the nation not to repeat an economic slowdown, the government plans to include certain economic measures in the national budget for the next fiscal year among other plans. Specifically, the government is considering adopting measures including providing subsidies for buying a home and reducing automobile taxes.
With the nationwide local elections and the House of Councillors election set for 2019 in sight, members of the governing parties may start applying pressure to make national expenditures rise. Measures to deal with tax increases should not become another name for pork barrel spending. Limiting policies to those that would help prevent sluggish consumer spending is an absolute necessity.
Implement reduced rates
According to estimates by the Bank of Japan, the extra burden on household finances due to a consumption tax rate hike amounted to 8 trillion yen when the rate went up from 5 percent to 8 percent. However, this time, it will only amount to about 2 trillion yen. This is due to the smaller increase of the tax rate and the reduced tax rate of 8 percent to be applied to food and subscribed newspapers.
In Europe, where many countries have a consumption tax rate set at around 20 percent, reduced tax rates have taken root, thereby alleviating the sense of heavy taxation.
In Japan, also, the tax rate of 10 percent will not be enough to sustain inflating social security costs. Further increases in tax rates are most likely inevitable. To prepare for the future, it is essential to introduce reduced tax rates without delay.
That the retail shops are slow to prepare for refurbishing or replacing cash registers is a concern.
In a survey conducted by The Japan Chamber of Commerce and Industry, 81 percent of small and medium-sized businesses responded that they have not yet started preparing for the introduction of reduced tax rates.
The government has set up a system to provide subsidies that will partially cover costs to refurbish cash registers. Those who need to make preparations should quickly do so.
Furthermore, confusion over the application of reduced tax rates should be avoided. The tax rate for bento boxed meals or beverages purchased at convenience stores or supermarkets to be consumed at home will remain 8 percent, while if they are to be consumed in-store, it will be 10 percent.
It is necessary for the government to make consumers and businesses well aware how the reduced tax rate system works.
(From The Yomiuri Shimbun, Oct. 13, 2018)
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