Business

Japanese government looks to make daily goods eligible for 2% rebate plan following consumption tax hike

Kyodo

The government plans to make purchases of daily necessities such as food and beverages eligible for a previously announced rebate program that is intended to bolster demand after the consumption tax is increased to 10 percent next year, sources said Friday.

The program, which is in addition to an already announced move to keep the tax rate at 8 percent for daily goods, provides incentives for credit card companies to offer reward points worth 2 percent of the purchase price for products bought at small- and medium-size retailers, restaurants and hotels. The plan, which will also cover payments made with other cashless methods, will essentially make it possible for consumers to buy necessities at a 6 percent tax rate.

Prime Minister Shinzo Abe announced earlier this week that the government will go ahead as planned with raising the consumption tax from the current 8 percent to 10 percent in October 2019, but the tax rate on items such as food, nonalcoholic beverages and newspapers will remain at 8 percent.

The rebate initiative will likely run for six months to a year after the tax hike.

Government officials will continue discussions on the details of the plan through November, the sources said.

The reduced tax rates and the rebate program are part of a package of measures the Abe administration has laid out to ensure the tax increase does not put a damper on private consumption like the previous hike from 5 percent did in 2014.

In order to balance out the expected surge in last-minute demand ahead of the hike — and ensuing plunge — the government also plans to expand tax breaks and subsidies for costly purchases such as cars and homes.

Abe and the ruling coalition of the Liberal Democratic Party and Komeito are struggling to assuage the public’s concerns over the tax hike ahead of the House of Councillors election next summer.

Despite the risks, the tax hike is seen as necessary to fund health care and pensions for a graying population while reducing the country’s public debt — the largest among advanced economies at more than twice the size of gross domestic product.

Skeptics say the rebate plan will not be enough to bolster consumer spending. The National Federation of Shopping Center Promotion Associations has called for the use of “premium vouchers” that have more purchasing power than the price they were bought for.

The government also plans to include in the plan other payment methods, such as those that use smartphones, given many smaller businesses in Japan do not accept credit cards due to the difficulty of installing card readers and high commission fees.

According to the economy ministry, Japan has a lower percentage of businesses that take cashless means of payment compared to China and South Korea. The government hopes the rebate plan will boost that number.