Japan PM Shinzo Abe to give green light to hike consumption tax to 10 per cent in October 2019

Japanese Prime Minister Shinzo Abe has pledged to go ahead with an increase in the national sales tax in October next year despite fears it could damage the economy.
Japanese Prime Minister Shinzo Abe plans to direct his Cabinet to study policies to soften the blow of a tax increase.
Japanese Prime Minister Shinzo Abe plans to direct his Cabinet to study policies to soften the blow of a tax increase.PHOTO: EPA-EFE

TOKYO (THE YOMIURI SHIMBUN/ASIA NEWS NETWORK) - Japanese Prime Minister Shinzo Abe has decided to announce his decision on Monday (Oct 15) to allow the consumption tax rate to rise from 8 per cent to 10 per cent as planned on Oct 1 next year.

The tax raise is deemed to be inevitable so as to secure funds for the country to transition to a social welfare system that supports all generations, The Yomiuri Shimbun has learnt.

Mr Abe also plans to direct his Cabinet to study policies to soften the blow of the tax increase. These could include a system that would allow small and mid-sized retailers to refund 2 per cent of purchases to customers in the form of reward points.

The government is planning to hold an extraordinary Cabinet meeting on Monday to approve a draft of the first supplementary budget for fiscal 2018. At the meeting, Mr Abe is expected to express his intention to move ahead with the tax hike and give instructions on measures to address its impact, sources said.

Mr Abe has been searching for the right time to make a final decision on the tax raise. He believes the nation is gradually coming out of deflation because of his signature Abenomics policies, and that if a wide variety of policies are implemented, they can hold back any potential dip in consumer spending.

The pillar of the measures under consideration is the "2 per cent points back" system of government subsidies, limited to small and mid-sized retailers.

Under this plan, if a small or mid-sized retailer refunds 2 per cent of a consumer's purchase by way of reward points, the government would subsidise this portion. The programme would be available for about six months to a year and apply only to credit card and other cashless purchases. Funding for the programme would be appropriated in the initial budget for fiscal 2019.

Large companies can choose to refund the 2 per cent portion of the tax increase or lower prices, but will have to pay for it themselves, without government support. The government plans to draw up guidelines for businesses to set prices in consideration of consumers.

There are also plans for policies to mitigate the impact of the tax raise on purchases of large consumer durables such as homes and cars. These could include reduced rates for ownership of vehicles purchased after the tax hike, and payment of benefits or lower taxes for home purchases and renovations.

The Liberal Democratic Party and its junior coalition partner Komeito plan to incorporate these policies into the ruling parties' tax reform outline to be released in December, after discussion at the tax system research bodies of both parties.

The consumption tax rate on food, beverages, newspapers and some other items would stay at 8 per cent. This reduced rate would not cover alcohol or dining out.

The reduced tax rate would be introduced simultaneously with the tax raise. Mr Abe will order Cabinet ministers on Monday to accelerate preparations for the implementation of the reduced rate, due to concerns that retailers are lagging behind in carrying out needed measures such as revamping or buying new cash registers.

A programme of free-of-charge pre-school education and daycare will also be introduced along with the tax hike, in a bid to ease the financial burden on households with children.

Fiscal stimulus programmes, such as emergency measures for improving the nation's resilience to major disasters, are also expected to prop up the economy.

The consumption tax rate was increased to 8 per cent in April 2014, and was scheduled to be raised to 10 per cent in October 2015. However, due to worries that it would harm personal consumption, Mr Abe had twice delayed the rate increase.