Tax on ‘happoshu,’ tobacco may climb

The Finance Ministry is again considering tax hikes on tobacco and “happoshu,” a beer-like alcoholic beverage, starting in fiscal 2003, ministry sources said Saturday.

The idea is likely to cause heated debate during discussions on changes to the tax system for fiscal 2003, which starts next April.

Currently, the tax for one cigarette is around 7 yen while that for a 350-ml can of happoshu is about 37 yen.

By increasing the tax on each cigarette by 2 yen, the ministry estimates it will see a rise in annual tax revenues of around 400 billion yen.

The ministry considered raising taxes on tobacco and happoshu during discussions on tax revisions for fiscal 2002, but dropped the plan in the face of opposition from consumers and industry officials.

The ministry needs more tax revenues to make up for a shortfall that will result from tax cuts to be implemented from fiscal 2003.

It is hoping that it will be relatively easy to increase taxes on nonessential items such as liquor and tobacco.

Prime Minister Junichiro Koizumi has proposed that in tandem with certain tax increases, a net tax cut worth more than 1 trillion yen be implemented in fiscal 2003.

The tax cuts are expected to center on reductions for corporate research and development. But there has been little discussion on tax hikes, a move that would be unpopular with the public.

The ministry’s plan is likely to meet strong objections from happoshu brewers and cigarette maker Japan Tobacco Inc., as well as tobacco farmers and smokers.

The ministry believes a tax hike on happoshu would be acceptable given that the happoshu tax is currently less than half of the tax on beer.

Attracted by lower prices resulting from the lower tax rate, many consumers are choosing happoshu over beer.

The ministry hopes that by reducing the gap between the tax on beer and happoshu, it will be able to put a stop to declining tax revenues.