Business

Japan's consumers and businesses have mixed views on consumption tax hike next year

Kyodo

Consumers and businesses had a mixed response to the Abe government’s decision Monday to lift the consumption tax rate to 10 percent next October as planned, with some understanding the need to restore fiscal health and others concerned about the impact on the economy.

Retail and some other sectors voiced wariness about possible confusion at stores, as the government will keep the tax rate on daily necessities such as food and beverages, excluding at restaurants and on alcoholic drinks, at the current 8 percent.

“The tax rise will affect my living, but it can’t be helped if it’s needed,” said a 59-year-old woman in Tokyo. But she said she was worried about how long the lower tax on daily goods will last, as “it may be raised eventually.”

Business leaders backed the tax increase as necessary to restore the worst fiscal health among industrialized countries, given that Japan’s rapidly aging population will mean increasingly higher social security expenses such as medical and pension costs.

“The consumption tax hike has already gained public approval,” said Hiroaki Nakanishi, chairman of the highly influential Keidanren business lobby.

He was referring to the victory by Prime Minister Shinzo Abe’s Liberal Democratic Party in the general election last year when Abe dissolved the Lower House seeking a public mandate on the plan to lift the consumption tax.

But the auto and real estate industries are bracing for a chill in spending following the tax rise.

“We experienced a severe impact in past cases of consumption tax increases which led to a surge in demand ahead of the increase but a plunge afterward,” an official at an automaker said.

An executive at a real estate company said he expects “a certain level of demand surge before the tax hike” but is also worried about the negative impact on the market in the long term.

Retail shops will need to do additional work in identifying which items are subject to which tax rate and update their cash registers accordingly.

Hiroyuki Nagata, a liquor shop owner in Osaka, said he agrees with the tax rise but that the reduced tax rate on daily goods will “duplicate paperwork as my shop has items for both tax rates.”

“We can hardly afford (new cash registers) with the subsidies from the government. It would be much easier if it was a flat 10 percent rate,” Nagata said.

The National Tax Agency’s website shows how the reduced tax rate will be implemented by giving examples, but an agency official said it has already received numerous inquiries from business operators.

The public isn’t well-informed yet, the official said.

Lawmakers of the ruling LDP reacted positively to going ahead with the tax hike and vowed efforts to implement measures to mitigate the impact on small and midsize firms. But some lawmakers in the Upper House, looking ahead to next year’s election, are worried about the impact on voters.

“It would be a lie if I say there is no influence on votes. There’s no way that everyone is happy about it,” said an Upper House member.

Opposition parties, meanwhile, were united in opposing the tax increase, saying the economy is not strong enough to withstand the heavier tax burden.

“Individual spending is growing, but only modestly. That’s somewhat worrisome. But the Japanese economy can bear the consumption tax rise,” said Katsuyuki Hasegawa, an economist at the Mizuho Research Institute.

“If the consumption tax cannot be raised at this stage, it would be more difficult in the future,” he said.

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