Confusion reigns over scope of the forthcoming tax hike - Jonathan Cartu Restaurant, Baking & Catering Services
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Confusion reigns over scope of the forthcoming tax hike

Confusion reigns over scope of the forthcoming tax hike


When the government raised the consumption tax from 5 percent to 8 percent in April 2014, Japan suffered a recession. One possible indicator if such a downturn will happen prior to next month’s long-delayed hike to 10 percent is how much people are spending now in anticipation of the increase. On Sept. 14, the Tokyo Shimbun reported on purchases of home electronics during the first week of September. On the whole, sales of digital electronics were less than they were a month before the 2014 tax hike went into effect. However, year-on-year sales of TV sets in September this year were significantly up from year-on-year sales in March 2014, mainly owing to the availability of 4K and 8K displays and the fact that many households have not bought new TVs since digital terrestrial broadcasts started in 2011.

In an Aug. 15 article, expensive home electronics was one of the categories of goods that Nikkei Style recommended for purchase ahead of the tax hike. Other categories include brand name merchandise, transportation passes, physical checkups not covered by national insurance and tickets for leisure activities. Among items the website said were not necessary to purchase before Oct. 1 are clothing, because apparel is often subject to bargain sales, and food, because it’s exempt from the tax hike. However, this exemption also highlights the public’s general confusion over the tax hike’s scope, confusion that is exacerbated by the media’s desperate attempt to make sense of the changes.

The biggest confusion is over the reduced tax rate and points reward system (keigen zeiritsu). A Mainichi Shimbun article detailed the reward points that consumers can accumulate over the next nine months to reduce their tax outlay when they use credit cards and electronic money. Ostensibly, the government wants to bring Japan up to speed in terms of cashless transactions. In Japan, consumers with credit cards use them for 20 percent of their purchases compared to 98 percent in South Korea and 44 percent in the United States, but only designated small and medium-sized businesses can register for the new cashless system. 

Online retailers, cashless by definition, can apply the savings, too, unless they’re large, like Amazon Japan, although independent vendors who sell their wares on the Amazon platform could theoretically apply the system if they’re capitalized below a certain amount. According to the Asahi Shimbun, only around 30 percent of eligible businesses had registered by the preliminary Sept. 6 deadline. There are various reasons why businesses neglected to sign up, but the upshot is that consumers will have fewer outlets to take advantage of the system, which could save them up to 5 percent, depending on the retailer.

In its Sept. 23 issue, Weekly Playboy predicts the reduced tax system will result in “chaos.” The National Tax Agency’s guidelines for applying the reduction to food and beverages is around 100 pages long. They point out that the reduction does not apply to alcohol and “stamina drinks,” but there are exceptions, like cooking sake, which is not made for drinking. However, mirin (seasoning sake) is also not made for drinking but will be taxed at the full 10 percent rate, even though its alcohol content is about the same as that for cooking sake.

If you consume a meal in a restaurant, you pay the full 10 percent, but if you take that food home it’s only 8 percent. It sounds simple, even when you consider convenience stores, some of which have counters where customers can enjoy their purchases in-store. Delivery food is trickier. If it’s only food, the tax is 8 percent, but any “service” involved, such as pouring coffee into cups, is considered “catering” and charged 10 percent. Weekly Playboy couldn’t quite figure out what to do about services that deliver food and utensils to camping sites for barbecues and called the tax agency. They waited two hours for an answer that was no less confusing.

Moreover, food establishments are setting their own price indications. An article in the Sept. 14 Asahi Shimbun said that Mister Donut will keep it simple: one price for eat-in, another for eat-out, both incorporating the appropriate tax rate. Some companies, like McDonald’s, are setting the same prices for eating in and eating out incorporating the respective tax. They’ll sort out the different rates in their payments to the government.

Many businesses prefer to show only the base price, but even this system is open to interpretation. Supermarket chain Ito-Yokado’s price tags show both the base price and the base price with tax, but won’t indicate whether the special reduction applies. Seven-Eleven stores indicate the availability of a price reduction with an asterisk, but patrons are encouraged to tell the clerk whether they’re eating in or taking out. Then the tax is added. And there’s the matter of whether a convenience store or fast-food restaurant is a franchise or corporate-owned. The former can apply the cashless system for greater savings. The latter can’t.

Starting April 2021, all businesses will have to show prices with tax included, a measure that was enacted before the last tax hike to 8 percent. However, at that time the hike to 10 percent was supposed to take place relatively soon and merchants complained about the timing, so the government let it slide. As the Asahi Shimbun points out, these exceptions and dispensations compound consumer confusion.

Many of the changes are being implemented to enhance transparency. Although shōhizei is translated as “consumption tax,” it’s really a sales tax, since it’s the seller who pays to the government, and retailers can easily cheat since documentation isn’t strictly enforced. In 2023, the government plans to implement a mandatory invoice system like the one used in the European Union, requiring all businesses to buy new equipment, thus placing a bigger burden on smaller companies, unless the government decides to subsidize such investments, as they do now for equipment to facilitate cashless payments. Things are obviously going to become more complicated before they become simpler.

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Jonathan Cartu

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