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Japan’s ruling bloc rules out tax breaks on necessities in fiscal 2014 when sales levy goes up

by Reiji Yoshida

Staff Writer

The Liberal Democratic Party-New Komeito ruling bloc said Wednesday it will not levy lower taxes on foods and other daily essentials when the 5 percent sales tax is raised to 8 percent in fiscal 2014 and instead will hand out cash allowances to low-income households.

The ruling bloc said it will “aim to” introduce special low rates for daily essentials when the tax is again raised to 10 percent in 2015, but it didn’t elaborate. While New Komeito is apparently trying to placate voters ahead of this summer’s Upper House election, the LDP is worried about lost tax revenues if a large part of the population gets a sales levy break.

LDP tax panel chief Takeshi Noda and his New Komeito counterpart, Tetsuo Saito, agreed on the new tack Wednesday night.

The two parties plan to formalize the agreement Thursday, when they decide on the outline of tax reforms for fiscal 2013, which starts April 1.

After the meeting, Noda told reporters the parties have yet to decide the details of the cash handouts, including its amount or who can receive them.

The outlays for the cash handouts will be included in the fiscal 2014 budget, which is expected to be determined by the end of next December, Noda said.

New Komeito had insisted that special low rates be introduced in 2014 to reduce the financial burden on low-income households, in an apparent effort to win popularity among voters ahead of the summer Upper House poll.

The LDP, led by Prime Minister Shinzo Abe, meanwhile has argued that it is too late for retailers and government offices to introduce in 2014 an “invoice system” that apparently would be necessary to track all transaction records of goods for multiple tax rates.

The LDP also has been reluctant because special low rates for daily necessities will greatly reduce government income expected from the tax hike, and will also force retailers to deal with massive paperwork.

“We now believe we can build up a better (multiple-rate) system if we introduce (the breaks) when the tax will be raised 10 percent,” Saito told reporters.

Saito stressed the two parties agreed to introduce the special low rates when the tax is raised to 10 percent, but the joint agreement read out by Noda was ambiguous, as it said the two parties will only “aim to” introduce low rates.

“We have agreed on just what I read out,” Noda said, adding the LDP is serious about abiding by the agreement.

The LDP-New Komeito government plans to raise the unpopular consumption tax to 8 percent in 2014 based on a bill that was passed last summer, but has said the hike may be delayed if the economy is in bad shape next fall.