Japan's ruling bloc revives lower tax rate plan

Japan's ruling bloc revives lower tax rate plan

The ruling parties on Tuesday decided to discuss in parallel three options, including the introduction of a reduced tax rate system and the Finance Ministry-proposed benefit payment plan, to ease the burden on the public when the consumption tax rate is raised to 10 per cent, according to sources.

The ministry's benefit payment plan has drawn a barrage of criticism from the ruling and opposition parties as well as the public, who say daily shopping will become troublesome due to the complexity involved. The ruling and opposition blocs also say the plan will not alleviate the sense of pain in paying the consumption tax among the public.

The Liberal Democratic Party and its junior coalition partner Komeito plan to seriously discuss again the introduction of the reduced tax rate system, which they pledged during their campaigns for the House of Representatives election last year.

The ministry's plan would impose a 10 per cent tax on all purchases by consumers and pay back to them at a later date benefits said to be equivalent to an amount worth two percentage points of the tax levied on food and nonalcoholic beverages. Setting the upper limit of the payment at about ¥5,000 a year per person is now being considered.

On Tuesday afternoon, the LDP and Komeito held a second-round meeting of their tax panel and agreed that they will discuss several plans, including the reduced tax rate system.

Komeito leader Natsuo Yamaguchi, meanwhile, said Tuesday the ruling parties should continue to discuss an initially advanced plan to adopt the reduced tax rate system for daily necessities. "We should continue discussions on the initially considered reduced tax rate system [along with the Finance Ministry's plan]," he said during a general meeting of the party's Tax Research Council.

Aso mentions lower tax rate

Finance Minister Taro Aso said on Tuesday that the ruling parties will likely consider the earlier proposed idea of adopting a lower tax rate for daily necessities when the consumption tax rate is increased to 10 per cent.

"If the plan [recently unveiled by the Finance Ministry] is rejected as no good, three options [for a lower tax rate] may be given consideration," Aso said at a press conference following a Cabinet meeting.

His comment indicated that the ruling parties will likely give renewed consideration to the reduced tax rate formula involving daily necessities, as a means of easing the burden to be shouldered by ordinary households when the consumption tax rate is raised.

In February, the LDP and Komeito set up a subcommittee at their tax panel to discuss specific ways to introduce a lower tax rate for daily necessities.

In May, the ministry presented three possible options regarding the list of items to be covered by the reduced tax rate. One option was food and nonalcoholic beverages, another option was perishable foods, and another was just polished rice. Items in the first category would include those consumed at restaurants and other facilities in the food service industry. The ruling party panel continued discussions about the three options.

However, the panel experienced difficulty in making decisions about such issues as how to draw a line between commodities covered by a lower tax rate and those not covered. Another issue was how to come up with financial resources necessary to make up for the loss of anticipated revenue due to the reduced tax rate.

During the press conference Tuesday, Aso reiterated his ministry would leave to discussions by the ruling parties what kind of approach should be adopted in reducing the burden. "We've offered our proposal [to the ruling parties], but we never intended to insist on the proposal," he said

At the same time, however, Aso said it will be difficult to come up with an option that could replace the ministry's proposal, which critics say will entail complicated procedures.

"There may be an even simpler idea, but we were not able to come up with such a plan. I do hope [the ruling parties] will think about such a plan," he said.

The ministry has asserted that it will be necessary to produce invoices that will contain such information as the amount of a tax imposed on each commodity item purchased if the reduced tax rate system is introduced.

At the press conference, Aso said that an anticipated increase in clerical work involved in the proposed adoption of a lower tax rate will pose a hurdle to introducing the reduced tax formula. The use of invoices will likely prove to be "an extremely cumbersome task," he said.

Critics have said the plan will do little to ease the pain to be felt by consumers when they buy goods.

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