Taxing adjustments ahead

With the consumption tax rate set to rise in less than a month, the government must make sure the hike doesn’t cause unfair transaction practices between large firms and their subcontractors and suppliers, or confusion on the part of consumers over changing ways of pricing.

The consumption tax rate, which will rise to 8 percent from 5 percent on April 1, is imposed on goods and services at each transaction stage. The added costs are passed onto the price at each stage and, ultimately, are shouldered by consumers.

When the tax rate last increased — from 3 percent to 5 percent in 1997 — some large businesses were reported to have taken advantage of their superior positions by effectively preventing their subcontractors and small suppliers from adding the tax increases to their prices.

In October, the government introduced a law aimed at making sure that the tax costs are properly included in prices. A surveillance team of about 600 experts, including former bank employees and accountants, was formed to watch for illegal practices by businesses. Malicious cases resulting in severe damage to smaller businesses will be referred to the Fair Trade Commission for corrective action against the violators.

According to the government, FTC warnings were issued to 139 companies over suspected violations as of late January. A survey of more than 150,000 small and medium-sized firms has been conducted to see if they have ever been subjected to illegal practices. Examples of violations include outright refusal by large firms to pay the portion of the transaction price attributable to higher taxes as well as demands for cuts in the costs of goods and services provided by suppliers to offset the increased tax costs.

The government needs to maintain its surveillance against such unfair practices long after the tax increases in April.

The same law also temporarily lifts the requirement on retailers to put “tax-inclusive” prices on their products. Until the end of March 2017, companies may opt to use price tags that don’t include the tax. The new tag for a ¥100 bottle of soft drink currently sold at ¥105 including tax, for example, may read “¥108 including tax” or “¥100 plus tax,” or merely “¥100″ as long as the shop makes it clear to customers that price tags at the store do not include tax.

For consumers, tax-inclusive price tags make it easier to understand the amount they have to pay. The temporary exception is aimed at relieving the retailers of the trouble of changing the price tag again when the tax rate is raised to 10 percent in October 2015 in the second phase of the planned tax hike.

Some supermarkets have already changed price tags to exclude tax costs, while some department stores and other shops say they will keep the tax-inclusive price tags.

Retailers are urged to give sufficient explanations to consumers so that they are not confused by store-to-store differences in pricing at the time of the April tax hike as well as when the rule requiring tax-inclusive price tags is reintroduced in 2017.