Postponing tax question will not lead to solution
A stopgap approach to resolving a challenge can never lead to reinvigoration of the national economy. Drastic revision of the tax system is urgently needed now.
The Liberal Democratic Party and its coalition partner New Komeito have decided on an outline of the ruling bloc's tax system revisions for fiscal 2013.
With the consumption tax rate scheduled to be raised to 8 percent from April 2014, the posture of Prime Minister Shinzo Abe's administration has drawn much attention.
Regarding the wisdom of applying a reduced rate to such goods as foodstuffs, the two parties have agreed to strive to introduce a lower tax rate when the consumption tax is raised from 8 percent to 10 percent in October 2015.
The LDP and Komeito seem to have postponed the introduction of a low tax rate on daily necessities mainly because they took into account objections from small and midsize businesses and others that their business operations would be complicated by the introduction of a reduced tax rate.
To secure public understanding about the consumption tax increase, however, it is definitely desirable to implement a lower rate system when the rate is raised to 8 percent. We believe the decision to put off its introduction is problematic.
Reduced rate must be 5%
The LDP and Komeito have agreed to have the specific rate of reduction, and the range of lower-rate goods, discussed by a panel of experts and to reach a conclusion toward the end of the year when deciding on tax system revisions for fiscal 2014.
Discussions on the issue must be launched promptly to ensure that lower rate arrangements are implemented when the tax is raised to 10 percent.
When the low tax rate system is introduced, the rate should be set at 5 percent on not only foodstuffs but also newspapers and magazines, which are public goods that serve as pillars of democracy.
Discussions on the motor vehicle acquisition tax and weight tax were difficult to the last, and the question of how to deal with these taxes was narrowly settled as a result of concessions by various sides.
Under the LDP-Komeito accord, the motor vehicle acquisition tax will be reduced when the consumption tax is raised to 8 percent and abolished when the rate is increased to 10 percent. As for the weight tax, the current tax breaks on eco-friendly vehicles will become permanent, with a view to using the motor vehicle-related tax revenue for improving and maintaining roads.
The planned abolition of the motor vehicle acquisition tax will reduce local governments' tax revenues by about 200 billion yen a year.
The tax system revision outline stipulates that abolition of the acquisition tax will "not adversely affect the finances of local governments." There have been no prospects, however, of how to secure revenue sources to make up for the lost income.
Simplify motor vehicle taxes
The automobile industry has called for abolition of both the motor vehicle acquisition tax and weight tax. It argues that they will cause a slump in motor vehicle sales if they remain in place after the consumption tax goes up. But local governments, concerned about loss of revenue, have opposed the abolition of the two taxes.
Apparently taking this summer's House of Councillors election into account, the LDP-Komeito agreement is an equivocal one intended to show deference to both the automobile industry and local governments.
The purposes for which the automobile weight tax is to be used are also problematic.
The two parties' agreement on the matter could eventually lead to a revival of the tax revenues set aside for road construction that the administration of the Democratic Party of Japan did away with in 2009 in the name of reducing fiscal waste.
It is important to thoroughly review and simplify the highly complicated tax structure on motor vehicles, including the gasoline tax.
Also envisioned in connection with tax system revisions for next fiscal year are increases in income and inheritance taxes on the wealthy. The effect of the tax hikes in securing fiscal resources for the government, however, is certain to be limited, and they may discourage people in high income brackets from working, lessening the nation's economic vitality.
Expansion of the tax breaks on housing loans and on some items of business activity has also been incorporated into the tax system revision outline, but it is unclear how effectively these steps will bolster the economy.
Such measures as a full-fledged cut in corporate income tax, coupled with a solid growth strategy, must be realized.
The government should explore ways to balance the tax burdens in each category of income level, assets and consumption.
(From The Yomiuri Shimbun, Jan. 25, 2013)