The head of a key government tax panel said Saturday that the consumption tax rate should be doubled to 10 percent in the future to provide tax revenue to cope with the aging population.
But Hiromitsui Ishi, chairman of the Tax Commission, said on a TV program that the tax rate should be kept at the current 5 percent on food and other daily necessities.
Ishi later told reporters the government may raise the tax rate in four to five years in view of the state of the economy.
But Ishi said any consumption tax increase should not be carried out unless the government cuts back on special exemptions for small businesses.
At present, small businesses with taxable sales of less than 30 million yen a year are exempt from paying consumption tax, and businesses with annual sales of less than 200 million yen are eligible to pay the tax under a simplified calculation method.
Ishi said the sales threshold at which small businesses have to pay consumption tax should be lowered to 10 million yen a year from the current 30 million yen.
He also said the simplified tax calculation method could be abolished.
These special tax treatments are often criticized as producing windfall tax profits for small businesses. Calculating tax under the simplified method, for example, is said to result in small and midsize firms paying less consumption tax than they should.
A total of 3.75 million small businesses are exempt from paying consumption tax, and about 1.06 million companies use the simplified calculation system.
The commission is expected to call for a future raise in the tax rate in a blueprint of comprehensive tax reforms to be submitted to Prime Minister Junichiro Koizumi in mid-June.
But Koizumi has said the government will not raise the consumption tax while he is in office.
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