Ja­pan hikes con­sump­tion tax to 10%

The Korea Times - - WORLD BUSINESS -

TOKYO (AFP) — From Oct. 1, Ja­pan fi­nally im­ple­ments a much-de­layed con­sump­tion tax hike, rais­ing the rate from eight per­cent to 10 per­cent, de­spite fears the move could cause a re­ces­sion.

The wor­ries have re­ceded some­what in re­cent months, and the gov­ern­ment in­sists the in­crease is nec­es­sary to fund key pol­icy pri­or­i­ties.

The in­crease cov­ers al­most all pur­chases, from elec­tron­ics and al­co­hol to books and cars. The gov­ern­ment has how­ever made a few ex­cep­tions. Mag­a­zines and news­pa­pers that pub­lish more than twice a week will stay at eight per­cent, along with food items pur­chased for con­sump­tion off-site.

That means gro­ceries will stay at the old rate, along with food pur­chased for take­out. But it puts some food re­tail­ers, in­clud­ing bak­eries and the coun­try’s ubiq­ui­tous con­ve­nience stores in a bind be­cause cus­tomers can choose to eat their pur­chases in store or out­side, re­quir­ing two dif­fer­ent rates.

Prime Min­is­ter Shinzo Abe’s gov­ern­ment has twice de­layed im­ple­ment­ing the hike over fears it could hit the coun­try’s frag­ile eco­nomic growth.

Growth in the sec­ond quar­ter was a re­vised 0.3 per­cent, com­pared to the pre­vi­ous quar­ter’s 0.5 per­cent, with ex­ports hit by the global eco­nomic slow­down.

And his­tor­i­cally tax hikes have hit Ja­pan’s econ­omy hard.

Both of the most re­cent in­creases — from three per­cent to five per­cent in 1997 and then to eight per­cent in 2014 — have been fol­lowed by re­ces­sions.

“Ja­pa­nese wages haven’t been go­ing up for 20 years,” said Mar­tin Schulz, an econ­o­mist at the Fu­jitsu Re­search In­sti­tute.

“That means that the con­sump­tion tax hike di­rectly in­duces a re­duc­tion of pur­chas­ing power,” he told AFP.

Ja­pa­nese con­sumers al­ready face sticker shock thanks to var­i­ous ad­di­tional in­di­rect taxes, in­clud­ing tar­iffs on im­ported goods.

Re­tail­ers dis­play prices be­fore tax, putting the full price only in smaller print be­low.

“It’s as if to say ‘It’s not us, it’s the mean gov­ern­ment!’” Schulz said.

Con­sumer reaction

The hike has caused anx­i­ety, with some con­sumers de­cid­ing to make big-ticket pur­chases be­fore the in­crease comes into ef­fect.

“The tax in­crease wor­ries me be­cause I’m go­ing to re­tire at the end of the month and my pen­sion isn’t very large,” Mayumi Susami, 65, told AFP at a large elec­tron­ics store in Tokyo.

But ex­perts say there are signs that many con­sumers have sim­ply re­signed them­selves to the in­crease and are un­likely to ad­just their spend­ing.

“Con­trary to ex­pec­ta­tions, there are min­i­mal signs of a sig­nif­i­cant in­crease in con­sumer spend­ing ahead of the tax hike next month,” Sha­hana Mukherjee, an econ­o­mist at Moody’s An­a­lyt­ics told AFP.

“This sit­u­a­tion lends fur­ther sup­port to the no­tion that the tax hike is al­ready priced into con­sumer ex­pec­ta­tions, and im­plies that spend­ing is less likely to be dra­mat­i­cally al­tered post the in­crease.”

VAT in Ja­pan is among the low­est in the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment, where the av­er­age rate in 2018 was 19.3 per­cent.

But the coun­try has the world’s high­est na­tional debt among de­vel­oped na­tions, a whop­ping 226 per­cent of GDP, and is strug­gling with the bal­loon­ing costs as­so­ci­ated with its age­ing pop­u­la­tion.

The gov­ern­ment is tak­ing mea­sures to soften the blow for con­sumers and re­tail­ers, in­clud­ing a mas­sive pack­age to fund in­cen­tives for car and home pur­chases, and help low-in­come house­holds and those with small chil­dren.

The mea­sures mean it will be some time be­fore the gov­ern­ment sees much of an im­pact from the tax on its cof­fers. It even­tu­ally plans to use the in­creased rev­enue to im­prove the so­cial se­cu­rity sys­tem as well as of­fer free preschool ed­u­ca­tion from the age of three.

Reuters-Yon­hap

Shop­pers walk at Yanag­ibashi Rengo Mar­ket in Fukuoka, south­ern Ja­pan, in this Sept. 26 file photo.

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