Lifting Ban Uncertain over Tax Hike Discounts in Japan

August 22, 2018

Tokyo- Dark clouds are looming over the Japanese government's move to lift a ban on retailers offering discounts to offset the impact of the consumption tax hike from the current 8 pct to 10 pct, slated for October 2019.

This is because of persistent concerns that small and midsize wholesalers may be forced to carry the burden of price cuts by major supermarkets and department stores.

The concerns are fueling complaints about the government's move among ruling party lawmakers supported by small and midsize companies.

The removal of the ban is designed to avoid a drop in consumption, after Japan suffered a fall in demand following the previous consumption tax increase, in April 2014 from 5 pct to 8 pct.

The ruling coalition is expected to consider the matter later this year as part of discussions on annual tax system changes.

The ban was introduced under a law that went into force in October 2013 to help small and midsize suppliers pass on higher costs stemming from the tax increase to large retailers.

Retailers even refrained from offering discounts unrelated to the consumption tax increase, due to worries about possible punishment under the law, although such discounts were permitted.

As a result, the tax increase "lifted prices considerably, weighing on consumption," a senior Finance Ministry official said.

In its annual economic and fiscal policy guidelines adopted in June, the government said it will consider ways to allow businesses to set prices at their own discretion in line with the tax increase.

Specifically, the government is considering the possibility of revising the 2013 law to lift the ban on discounts.

But the move is drawing strong opposition from small suppliers.

Discounts are likely to force wholesalers to reduce prices as they have less bargaining power than major retailers, said officials at the Japan Chamber of Commerce and Industry, which represents small and midsize firms.

Concerns are also strong among small businesses outside the wholesale industry. "Small parts makers like us will suffer most," said an official of a Tokyo-based rubber parts processing firm.

A senior lawmaker at the ruling Liberal Democratic Party, whose major support base is small and midsize firms, expressed concerns about the lifting of the ban.

"Small and midsize retailers are not financially strong to launch discounts. Customers will shift to major retailers offering discounts," the LDP lawmaker said. Jiji Press