Japan’s ruling parties reached a final agreement Saturday to designate all food products except at restaurants as subject to a lower consumption tax rate when the government raises the rate to 10% in fiscal 2017, their secretaries general said.
Excluding fresh and processed foods from the tax hike from the current 8% would reduce state revenues by some 1 trillion yen annually, forcing the government to find other sources to cover the loss.
Multiple sales tax rates intended to ease the burden on low-income consumers, widely adopted in European countries, will be introduced in Japan for the first time since the consumption tax was first implemented in April 1989.
Under the agreement, fresh and processed foods, and beverages, excluding alcoholic drinks, will be subject to the tax hike exemption.
But more work is still needed to distinguish processed foods from restaurant foods, including delivery service and products bought and consumed at convenience stores.
The Liberal Democratic Party and Komeito party are studying ways to make up for the loss in revenue, but it remains unclear how they can do so, though they so far plan to reduce some social security measures to squeeze out some 500 billion yen.
Both parties will “take responsibility to secure stable and permanent financial resources,” a document of their agreement said, adding legislative measures will be taken by the end of fiscal 2016, without stating specific steps.
At a press conference, secretaries general of the LDP and Komeito, Sadakazu Tanigaki and Yoshihisa Inoue, said they will stick with the fiscal reform plan to achieve the government’s goal of turning a primary balance deficit into a surplus in fiscal 2020.
“At this stage, I believe that we were able to agree on the best plan,” Tanigaki told a press conference. “We will take one year to scrutinize” means to secure financial resources, he added.
The accord will be included in their fiscal 2016 tax reform policies to be formally adopted in the near future. The parties plan to have related bills passed during an ordinary Diet session to be convened early next year.
Business operators will use detailed invoices from April 2021 to account for different sales tax rates to be introduced. Between April 2017 and March 2021, simplified invoices should be used so businesses can prepare for the detailed accounting method.
The agreement marks an end to marathon talks between the ruling parties, as they started discussions with different views on whether to include processed foods within the scope of food items subject to the lower tax rate.
While the LDP earlier called for limiting items subject to a lower tax rate only to fresh foods due to concerns about a loss in tax revenue and the clerical burden on businesses, Komeito demanded the inclusion of processed foods.
The LDP eventually made a considerable concession to Komeito, as it apparently prioritized cooperation with the junior coalition partner in the House of Councillors election next summer.
“Regardless of income levels, we took into account that processed foods are purchased widely,” Tanigaki said, adding that the scope of items subject to the tax hike exemption should be widened to the utmost extent.
In the final stage of their talks, the LDP called for including food served at restaurants for the tax hike exemption in order to avoid confusion over drawing a line between such food and some processed food items including take-out dishes, but the proposal was rejected.
On whether to add newspaper and books in the list of the tax hike exemption, Tanigaki said the parties will continue talks to make a decision.