A year after the consumption tax rate hike from 8 percent to 10 percent the country’s finances are continuing to deteriorate due to the economic slowdown triggered by the pandemic.
The consumption tax is seen as a stable source of funds to cover social security costs. The government is using the revenue from the tax hike to reduce education fees for young children and university students and to benefit low-income older people as measures to tackle the aging of society and shore up the nation’s low birthrate.
Under the government’s general account, consumption tax revenue in fiscal 2019, which ended in March this year, grew by ¥700 billion from the previous year to ¥18.4 trillion thanks to the 2-percentage-point hike on Oct. 1 last year. However, the revenue failed to reach the expected level of ¥19.1 trillion due to sluggish consumption as fears grew earlier this year over the coronavirus.
Its total tax revenue in the year, including income tax and corporate tax, fell ¥1.9 trillion year on year to ¥58.4 trillion.
The government forecasts its total tax revenue at ¥63.5 trillion in fiscal 2020, but the actual figure will likely fall short of that amount due to the coronavirus fallout.
The gap between its expenditures and revenue in fiscal 2020, which ballooned to ¥160.3 trillion after the passage of a second supplementary budget for the year to finance economic stimulus measures, is seen reaching an unprecedented level.
Even after the consumption tax increase, the rate is kept at 8 percent for takeaway food items while the rate is 10 percent for food eaten on site.
Confusion arising from the two tax rates for food has disappeared as store staff and customers have become used to the system. An official of a major convenience store operator said that there have been no major issues so far.
Many stores have begun boosting their bento lineups and other food items that can be taken away or delivered, as they are subject to the 8 percent tax rate.
However, stores were forced to temporarily halt operations or open for shorter hours earlier this year due to the pandemic.
“The coronavirus fallout far overwhelmed the tax hike impact,” an official at a major restaurant chain operator said.
Although requests for people to stay home in response to the epidemic have been eased, consumers have been slow to return to eateries and other stores.