Proposed tax refunds on food and drink following a hike in consumption tax next year will have only limited benefit for the economy, some analysts have warned. By one estimate, the refunds will boost gross domestic product growth by a mere 0.03 percentage point.
The tax rate will rise to 10 percent from 8 percent in April 2017 — and a system of refunds is proposed to ease the burden on consumers.
The Finance Ministry proposes that shoppers secure refunds of the 2-percentage-point tax hike portion for food and drink, excluding alcohol.
The ruling Liberal Democratic Party and its coalition ally Komeito have recently started discussions on ways to cushion the impact of the tax hike, based on the measure the ministry has proposed.
Consumers will apply for the refunds on the Internet using their My Number identification cards, an upcoming system aimed at streamlining social security and taxation. The ruling coalition may consider setting the upper limit of the refunds at around ¥4,000 a year per person.
It remains to be seen how effective the refund system will be in stimulating consumption and the economy.
Some argue the system will not help ease consumers’ sense of burden from the tax hike.
Toshihiro Nagahama, senior economist at Dai-ichi Life Research Institute, said the refund system will be unacceptable to the public and thus consumption will inevitably decelerate.
He said the 2-point sales tax hike is expected to depress Japan’s real GDP growth for fiscal 2017 by 0.24 point. Even if the tax refund is introduced, GDP growth for the year starting in April 2017 will be pushed down by 0.21 point.