The government and the ruling parties will likely expand items subject to a reduced tax rate to include processed foods.
The Liberal Democratic Party has agreed to a plan to raise the cap on the amount of financial resources set aside to offset a potential revenue loss following a planned introduction of a reduced consumption tax rate. The new cap would be more than ¥400 billion.
The focus of attention in discussions within the ruling parties will be to what extent this upper limit will be raised and to what extent the range of items subject to a lower tax rate will be expanded.
The LDP previously insisted the cap be ¥400 billion. With the funds of ¥400 billion, however, a reduced tax rate could be applied basically only to fresh foods such as vegetables, fish and meat, which would lead to ¥340 billion less tax revenue per year than if there were no reduced rate. Komeito has been opposing this cap, saying it is meaningless to introduce a reduced tax rate if the scope of items to be covered by a lower tax rate is too narrow.
If financial resources of ¥820 billion are secured, it will be possible to apply a reduced tax rate to food, which would include fresh foods and processed foods but exclude alcohol, dining out, snacks and nonalcoholic beverages. If ¥1 trillion is set aside, a reduced tax rate can be applied to foods and beverages, still excluding alcohol and dining out.
Komeito has insisted that about ¥1 trillion be secured as alternative revenue sources and the scope of items subject to a lower tax rate be expanded accordingly.
However, retailers and other business operators expressed concern over a plan to apply a reduced tax rate to fresh foods and processed foods, saying their accounting will not be able to handle work associated with the planned consumption tax hike in April 2017 because the grouping of items subject to a lower tax rate is too complicated.
