Japanese Prime Minister Shinzo Abe has decided to announce his decision on Monday to allow the consumption tax rate to rise from 8 percent to 10 percent as planned on October 1, deeming the tax raise to be inevitable so as to secure funds to transition to a social welfare system that supports all generations, The Yomiuri Shimbun has learned.
Abe also plans to direct his Cabinet to study policies to soften the blow of the tax increase. These could include a system that would allow small and midsized retailers to refund 2 percent of purchases to customers in the form of reward points.
The government is planning to hold an extraordinary Cabinet meeting Monday to approve a draft of the first supplementary budget for fiscal 2018. At the meeting, Abe is expected to express his intention to move ahead with the tax hike and give instructions on measures to address its impact, sources said.
Abe has been searching for the right time to make a final decision on the tax raise. He believes the nation is gradually coming out of deflation because of his signature Abenomics policies, and that if a wide variety of policies are implemented it can hold back any potential dip in consumer spending.
The pillar of the measures under consideration is the "2-percent points back" system of government subsidies, limited to small and midsized retailers. Under this plan, if a small or midsized retailer refunds 2 percent of a consumer's purchase by way of reward points, the government would subsidize this portion. The program would be available for about six months to a year and only apply to credit card and other cashless purchases. Funding for the program would be appropriated in the initial budget for fiscal 2019.
Large companies could choose to refund the 2 percentage portion of the tax increase or lower prices, but would have to pay for it themselves without government support. The government plans to draw up guidelines for businesses to set prices in consideration of consumers.
There are also plans for policies to mitigate the impact of the tax raise on purchases of large consumer durables such as homes and cars. These could include reduced rates for ownership of vehicles purchased after the tax hike, and payment of benefits or lower taxes for home purchases and renovations. The Liberal Democratic Party and its junior coalition partner Komeito plan to incorporate these policies into the ruling parties' tax reform outline to be released in December, after discussion at the tax system research bodies of both parties.
The consumption tax rate on food, beverages, newspapers and some other items would stay at 8 percent. This reduced rate would not cover alcohol or dining out.
The reduced tax rate would be introduced simultaneously with the tax raise. Abe will order relevant Cabinet ministers on Monday to accelerate preparations for the implementation of the reduced rate, due to concerns that retailers are lagging behind in carrying out needed measures such as revamping or buying new cash registers,
A program of free-of-charge preschool education and daycare will also be introduced along with the tax hike, in a bid to ease the financial burden on households with children. Fiscal stimulus programs, such as emergency measures for improving the nation's resilience to major disasters, are also expected to prop up the economy.
The consumption tax rate was increased to 8 percent in April 2014, and was scheduled to be raised to 10 percent in October 2015. However, due to worries that it would harm personal consumption, Abe twice delayed the rate increase.
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