Ruling bloc OKs fiscal 2014 tax reform plan, vague on key measure
TOKYO (Kyodo) -- Japan's ruling parties on Thursday adopted tax reform policies for fiscal 2014, putting off a decision on when to lower the tax rate on daily necessities to cushion the impact of the sales tax hike to 10 percent the following fiscal year.
But Prime Minister Shinzo Abe's Liberal Democratic Party and its coalition partner the New Komeito party agreed to increase taxes on company workers and car owners in an effort to restore Japan's fiscal health, the worst among developed nations.
In the tax reform plan for the next fiscal year starting April, the two parties pledged to reduce taxes on daily necessities such as food "at a time when the (sales) tax rate is at 10 percent."
The ambiguous expression, reflecting discord between the two parties on the measure, does not make it clear whether the rate will be cut simultaneously with the consumption tax rise in October 2015 or at a later stage.
The LDP has been reluctant to introduce the reduced tax rate, which New Komeito has proposed to prevent the sales tax hike from hurting households.
The ruling parties will aim to reach a conclusion on which items to make subject to the reduced tax rate and how to implement it in their tax reform outline for fiscal 2015, which is to be crafted in late December next year.
Under the tax policy guideline for fiscal 2014, the LDP and Komeito also agreed to increase the tax burden on company employees who make more than 12 million yen a year from 2016 and on those earning over 10 million yen from 2017 by trimming tax credits.
The two-stage tax hike on salaried workers is expected to trigger a public backlash, given that the number of people in Japan who make more than 10 million yen a year is around 1.72 million.
The ruling camp also decided to raise the tax on ownership of minicars with engine displacements up to 660 cc for personal use from 7,200 yen a year to 10,800 yen. The change in the tax will target new cars purchased after April 2015.
Minicars account for about 40 percent of new car sales in Japan.
In an attempt to invigorate business investment, the ruling parties, meanwhile, decided to end a special corporate tax surcharge introduced to fund reconstruction work in areas hit hard by the March 2011 earthquake and tsunami one year earlier than scheduled at the end of next March.
As steps to avoid a sharp downturn in car sales following a planned consumption tax hike next year, the ruling bloc agreed to cut the vehicle acquisition tax levied at the time of purchase to 3 percent from 5 percent and to expand the eco-car subsidy program.
Under legislation enacted last year, the sales tax rate will be raised from the current 5 percent to 8 percent in April and to 10 percent in October 2015. Abe is likely to make a final decision on whether to carry out the tax hike to 10 percent at the end of 2014.