Shopping frenzy ahead of sales tax hike

Aesthetic salon owner Fumie Takeuchi splurged 3 million yen (S$37,000) on jewellery at one go earlier this month, after a saleswoman gently reminded her that the sales tax was going up on April 1.

"I had long been eyeing a certain black diamond ring but hesitated because it was rather expensive," said Mrs Takeuchi, 57.

"But the other day, when the saleswoman gave me a nudge by pointing out that the tax hike was imminent, I succumbed."

From April 1, the goods and services tax (GST) will be raised from 5 to 8 per cent.

Besides the black diamond ring, Mrs Takeuchi walked out of the store with a pendant, a sapphire ring and a pearl necklace, the last three items bought largely on impulse, she said.

Across Japan, consumers who want to avoid paying the higher sales tax have been rushing out to buy big-ticket items or stock up on daily essentials.

The Japan Department Stores Association said its members in the Tokyo area reported that sales went up by 15 per cent as of mid-March.

At Yamada Denki, Japan's largest home electronics discounter, sales soared 27 per cent last month and are expected to be even higher this month, thanks to a surge in purchases of air-conditioners, television sets and fridges.

At the Seiyu chain of supermarkets, customers were stocking up on items such as mineral water, detergent and toilet paper.

Meanwhile, Aeon, the country's second-largest retailer by sales, is holding a five-day sale till Monday with discounts of 5 to 20 per cent at its supermarkets and shopping malls to attract customers.

Sales of new cars, however, have mostly died down.

The sales tax is levied only when new car owners receive their licence plates.

But since it takes a week or more for new car applications to be processed, the chances of booking a new car now and taking ownership before April 1 are very slim.

What worries retailers is the expected plunge in sales after April 1.

According to the Japan Automobile Manufacturers Association, sales of new cars are likely to fall by about 15 per cent to 4.75 million units in the 12 months from April.

In 1997, when the sales tax was raised from 3 to 5 per cent, sales fell 14 per cent.

Yamada Denki says it expects sales to be depressed by 4 per cent on an annual basis and that it would take about half a year to recover to pre- April levels.

To entice shoppers, Takashimaya Department Store has been handing out 1,000-yen gift coupons for purchases above 5,000 yen which can be redeemed next month.

To head off the competition, Sukiya, the nation's largest beef bowl chain, will lower the price of its signature dish by 10 yen to 270 yen, inclusive of tax.

Its competitors are raising the prices on theirs by 10 to 20 yen.

To cushion the negative impact of the tax hike, the government will hand out one-time payments of 10,000 yen each to low-income earners and 15,000 yen each to pensioners.

The higher payment for pensioners takes into account the fact that pension payments will be cut by 0.7 per cent from next month and people in the 70-74 age group will also have to pay 20 per cent of their medical bills, up from 10 per cent.

To prevent the economy from going into a tailspin, which was what happened after the 1997 tax hike, the government is boosting public works projects to pump up the economy. But critics say this measure mostly benefits construction companies and that the trickle effect does not reach consumers fast enough.

Although many major firms recently promised wage hikes for employees, small and medium-sized companies cannot do so.

The tax hike is expected to add about 80,000 yen in annual expenses for a family with a total income of 5 million yen a year.

In a survey by the Yomiuri Shimbun daily, 55 per cent of households say they plan to cut back on spending after the sales tax goes up.

"There is talk of higher bonuses for some workers this summer.

"But that may not offset the additional tax sufficiently to make people spend more," said Assistant Professor Yasuyuki Iida, who teaches economics at Meiji University.

"The hardest hit will be low-income earners and small businesses.

"I think the government needs to come up with additional stimulus measures in the second half of this year."

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