Opposition: Exempt necessities in tax hike

Low-income earners will benefit if levy on food, daily needs is lower

JIJI

In parliamentary debate that kicked off Tuesday for the proposed consumption tax hike, opposition parties are ready to propose lower rates on certain items, particularly daily necessities, to reduce the burden on low-income earners, party sources said.

Diet deliberations started Tuesday on legislation for tax and social security system reforms. The ruling Democratic Party of Japan is hoping to pass the government-proposed legislation to double the consumption tax to 10 percent in stages by October 2015.

But the administration of Prime Minister Yoshihiko Noda — who has staked his political career on achieving the sales tax hike — is far from striking a deal with the opposition camp.

An agreement between the DPJ and the opposition about lower rates on foods and other designated items would be a breakthrough for the debates, but reaching such a deal will be difficult, as the DPJ is reluctant about the opposition’s idea, the sources said.

In addition, there is an internal rift within the DPJ between party leaders and members close to party don Ichiro Ozawa, who has long opposed raising the tax.

Lower rates on food items are commonly used in Europe, where consumption tax levels are generally higher than in Japan.

Some U.S. states also waive sales taxes on food and other daily needs while charging levies on consumer items deemed nonnecessities. Washington state, for example, has a sales tax of around 10 percent, but basic food items are exempt, whereas items deemed nonessential for a heathy diet, including sweets and alcoholic beverages, are taxable.

Policy chiefs of the Liberal Democratic Party and New Komeito, the No. 1 and 2 opposition parties, agreed before the Golden Week holidays started in late April that such reduced taxes are an option for supporting low-income earners.

But the Finance Ministry claims differentiated tax rates could cause confusion since it would be difficult to draw up criteria that is acceptable to everyone.

In Germany, a hamburger has a 19 percent tax imposed on it if the customer eats it in the restaurant, but only a 7 percent tariff if it is taken out.

Tax rates are even more complicated in France as they are designed to protect domestic industries. The standard tax rate of 19.6 percent is imposed on caviar, produced largely in Russia, but a lower rate of 5.5 percent is set for foie gras and truffles, which are made in France.

The ruling DPJ is therefore reluctant to adopt reduced tax rates. Senior Vice Finance Minister Fumihiko Igarashi has said it “would newly create inequality.”

A senior official of the DPJ’s tax commission believes it will be more reasonable to adopt a refundable tax credit system or to make simple cash handouts before the system’s launch.