Reduced consumption rate system must be at same time as hike to 10%
We are concerned that increasing the consumption tax rate to 8 percent from April may dampen personal spending. The latest tax policy agreement between the ruling coalition parties has left unresolved problems regarding measures to shore up business activities.
The Liberal Democratic Party and coalition partner New Komeito decided Thursday on an outline for tax system revisions for fiscal 2014. The decision signifies the ruling parties’ endorsement of a government budget draft for next fiscal year and a set of tax revision bills to be presented to the Diet early next year.
The LDP-Komeito agreement has fallen short of deciding on a specific date to introduce a reduced consumption tax rate system to curb the tax rate on food and other daily necessities to benefit low-income people. The agreement also has incorporated such items as income and residential tax levies on salaried workers. Steps to impose heavier tax burdens on households are conspicuous in the accord.
Specific timing ambiguous
The biggest focus in the tax revision discussions was whether a reduced tax rate system should be introduced at the same time as an increase in the sales tax to 10 percent scheduled for October 2015.
In January, the ruling coalition reached an agreement to “make efforts to introduce” a tax break on necessities when the planned hike to 10 percent occurs.
The ruling parties' accord, this time, however, said a reduced tax rate system “will be introduced at a time when the consumption tax rate is 10 percent, after necessary financial resources and understanding from the public, including businesses, are secured.” It added that the ruling camp will “reach a conclusion on the matter by December 2014.”
The proviso added to the ruling coalition’s accord, such as “understanding from the public,” will weigh heavily on future discussions on a reduced tax rate, since the wording in the accord can be interpreted as either “at the same time as the hike to 10 percent” or “sometime after” the hike.
This is the product of compromise between the LDP, which has remained wary of implementing a reduced tax rate, and Komeito, which has strongly insisted the proposed tax break on such items as food and newspapers be introduced when the rate is raised to 10 percent.
A reduced tax rate system would mitigate tax burdens on all taxpayers, including lower-income people, helping shore up a broad spectrum of household budgets.
It is also problematic that the tax system revision outline this time has come short of discussing specifics, such as which items would be eligible for a lower tax rate.
Decisions on specific items to be covered and plans to put the reduced rate system into practice must not be postponed unnecessarily. A decision should be made quickly to introduce a reduced tax rate at the same time the rate is increased to 10 percent.
During the ruling camp’s tax discussions, the LDP’s Tax System Research Commission and the Finance Ministry pointed out the introduction of the reduced tax rate system would make it necessary to employ an invoice system to log the tax rates and amounts item by item, leading to complicated clerical work for businesses.
Given that business deals free from the consumption tax, including land transactions, and those subject to the tax have been in place even under the existing tax system, Komeito refuted that argument in the discussions, noting a reduced tax rate system could be realized without an invoice system. The LDP tax panel and the Finance Ministry should have more aggressively addressed resolving impediments to employing a reduced tax rate.
The tax system revision outline also includes steps to reduce the income tax breaks for company employees and other salaried workers, and raising their income and residential taxes. People whose annual income exceeds ¥12 million will be subject to heavier taxes from 2016, and those whose annual income is more than ¥10 million will be subject to them from 2017.
According to a trial calculation by the Finance Ministry, people with an annual income of ¥15 million are estimated to have an additional tax burden of ¥70,000 to ¥110,000 a year. There are fears this will dampen their motivation to spend in anticipation of an increase in the burden on household budgets.
As the planned consumption tax hike is expected to increase the perceived burden on low-income earners, the ruling parties seem to have tried to alleviate the sense of unfairness by imposing increased tax burdens on high-income earners.
Fast and sloppy
However, full-scale discussions on the reexamination of tax deductions were conducted for merely a week. It cannot be helped if the ruling parties are criticized for targeting company employees, whose income can be easily ascertained, unlike that of the self-employed, to ensure tax revenue.
Quite a few people are increasingly dissatisfied over the fact that the ruling parties quickly decided on a tax hike for salaried workers while not presenting a time frame for introducing the reduced consumption tax rates.
In the case of taxation on automobiles, the tax hike for light motor vehicles was incorporated into the outline of tax system revisions as a measure to secure fiscal resources needed to phase out the automobile acquisition tax from next fiscal year.
The tax on light vehicles is less than that on compact cars. As long as light vehicles also impose burdens on roads and the environment, it is unavoidable for the light vehicle tax to be raised in line with the beneficiary-to-pay principle.
In regard to lowering the corporate tax, which was regarded as a centerpiece of the government’s growth strategy, the outline said merely that the matter will “continue to be studied.” Discussions on concrete measures such as the timing and margin for a tax cut have not deepened.
Japan’s corporate tax rates—even if excluding the special corporate tax for reconstruction from the 2011 disaster, which is planned to be abolished at the end of fiscal 2013, one year ahead of schedule as an economic measure—are higher than those in Europe and many other Asian countries.
Cut corporate tax urgently
To stem the hollowing out of industry and lure investments from overseas, it will be indispensable to lower corporate tax rates further. The matter must be studied at a faster pace.
Companies that will benefit from the early abolition of the special corporate tax for reconstruction should use improved profits for wage hikes and employment expansion, thereby spreading benefits to households.
The outline has also put forth a policy of approving up to 50 percent of entertainment expenses used by big businesses to entertain business partners and clients as necessary expenses with no tax levied.
It is understandable that the outline aims to expand the tax exemption system, which has been applied to part of the entertainment expenses of small and midsize companies as impairment costs, to big businesses. We hope sales for drinking and eating establishments will increase by making it easier for firms to increase entertainment expenses and that this will prove effective in curbing the adverse effects of the consumption tax hike.
(From The Yomiuri Shimbun, Dec. 13, 2013)