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On February 15, DPJ Tax System Research Committee Chair, member of the House of Representatives Motohisa Furukawa questioned Prime Minister Abe in the House of Representatives Committee on Budget, asking about measures to offset the regressive impact of consumption tax.
Furukawa referred to the three principles of taxation, saying “Tax must be fair, neutral and simple.” He criticized the government, commenting, “The DPJ believes that as measures to offset the regressive impact of consumption tax we should maintain a single tax rate, and introduce refundable tax credits to assist those on low incomes. The government is trying to do this by means of reduced tax rates, but such rates run counter to each of the three principles of taxation.”
Furukawa stated, “If reduced tax rates are introduced, making the tax system more complicated, this will have a huge impact on business owners, who are the ones actually responsible for paying tax. It will also have an enormous negative effect on the economy.” The government side explained that “there is a global trend toward reduced tax rates”. In response, Furukawa strongly opposed the introduction of such rates, saying, “The tax offices of many EU nations admit that [reduced tax rates] are ‘a failure’ and would like to stop using them if that were possible. It is a mistake to say that there is a global trend toward reduced tax rates simply because European nations are using them. If we consider the chaos they will cause in practice, we have no alternative but to describe them as a disastrous policy for the nation.”
Furukawa went on to point out problems with the introduction of reduced rates, cited hypothetical examples such as: “School lunches would be taxed at 8% but meals at university cafeterias would be taxed at 10%”, “If a customer who purchased a meal to take away then decides to sit down in the shop to eat it, there will be a price disparity in comparison with customers who purchased a meal to eat in.” Food deliveries will be taxed at 8%, so fuel and personnel costs will increase”, “Individual businesses will be left to bear the burden of dealing with products which can be taxed at 8% and at 10%”. Minister of Finance Aso responded rather carelessly to this, saying, “There will be differences in the response of various business owners. It is inevitable that there will be a degree of confusion, but we will take time to respond to this.”
Furukawa suggested, “The more than we hear of the government’s explanation the more confusing it becomes. This confusion and its cost will inevitably fall more heavily on small and medium-sized businesses. Rather than forcing through reduced tax rates, the government should continue with simple benefit provision measures for the time being, and after that compare the merits of implementing refundable tax credits with those of implementing reduced tax rates.”
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