Suffering from Consumption Tax Reform

The government of Japan introduced today a new rule in consumption tax system. Although some small businesses have been exempted from paying consumption tax, they will have to pay for it in consideration of maintaining their business in the new system, or diminish their business. Some small business owners are protesting against the new system, claiming they might be losing their job.

A business owner pays consumption tax to the government, which was added on the sales price. But the owner has paid consumption tax to the seller of raw products. So, the tax already paid to the supplier must be deducted from the tax obtained from the sales, when the business owner pays consumption tax to the government. And there has been an exception. A small business with ¥10 million of yearly sales or less does not have to pay consumption tax to the government. That has been a measure to protect small businesses.

 

New rule requires tax payers submitting an invoice to the government, which describes amount of tax with rate or identification number. A small business with yearly ¥10 million or less can choose whether to pay consumption tax or not. But, if the small business chooses not to pay consumption tax, it cannot issue an invoice to the buyer. It is concerned that the buyer may stop the trade with that small business, because the buyer cannot prove how much should be deducted as the purchase of the products.

 

To maintain the business with the buyer, the small business has to give up the exemption and start paying consumption tax. That is why the new system is called by small business owners consumption tax hike in the name of introducing invoice.

 

One of the suffering jobs is individual taxi drivers. According to the report of Asahi Shimbun, if a driver with ¥4 million of yearly sales starts paying consumption tax, he/she has to pay additional ¥80 thousand. The workers’ union demanded the government to stop introducing new system, arguing that the individual taxies would be severely damaged.

 

Kishida administration is applying some measures to ease the damage on small businesses, but they are only temporary. A small business starting tax payment can pay only 20% of whole consumption tax for three years. The buyer can count 80% of whole consumption tax for the deduction for three years and 50% for next three years.

 

There are some examples in which a major buyer demands a small business owner without invoice a discounted price. That kind of trade can be a use of superior bargaining position, which is prohibited in the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade. Virtual consumption tax hike may cause the rise of commodity price, when Japan’s economy is suffering from steep inflation.

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