Japan examining tobacco tax hike

October 26, 2017

Japan's government and ruling bloc are considering including a tobacco tax hike in the country's the tax system reform package for fiscal 2018, informed sources said Wednesday.

The government and the ruling pair of the Liberal Democratic Party and Komeito hope to use revenue from the tax hike to cover an expected fall in taxation due to the introduction of a reduced tax rate for some items at the time of the planned consumption tax increase from 8 pct to 10 pct in October 2019.

The margin of the envisioned tobacco tax hike and its schedule will be discussed at meetings of the ruling bloc's tax panels from November.

The tax hike plan is likely to face a backlash from smokers and tobacco farmers.

The country's tobacco tax has been increased in stages while sales have dropped. Revenue from the tax, including for local governments, totaled 2.1 trillion yen in fiscal 2016 through March this year.

In the most recent tobacco tax hike, in October 2010, the government raised the rate by 3.5 yen per cigarette. As a result, fiscal 2011 tobacco tax revenue soared by 350 billion yen from fiscal 2009.

Yoichi Miyazawa, chairman of the LDP Research Commission on the Tax System, has taken a positive stance on a tax hike for heat-not-burn tobacco products, which have attracted many users recently.

The government and the ruling bloc decided to start discussions on the tobacco tax increase, also covering standard cigarettes, judging that it would be easier to gain public support as efforts are under way to beef up measures to prevent passive smoking.

The proposed reduced tax rate for the consumption tax for some items is expected to cut annual tax revenue by some one trillion yen.

Of the sum, 400 billion yen will be covered by scrapping a plan to place a cap on the sum of out-of-pocket expenses for medical, elderly nursing care and other social security services borne by poor households.

The government and the ruling bloc hope to utilize part of the expected revenue from the tobacco tax hike to help cover the remaining 600 billion yen. Jiji Press