The other day, I wrote an article on the consumption-tax reverse charge. Because consumption-tax treatment differs from one transaction to another, accounting departments at globally active companies face considerable confusion.
Do you remember the confusion when the 3% consumption tax was introduced? Extensive preparation was needed, including upgrades to cash registers and vending machines.
The rate subsequently rose to 5% and then 8%, with 10% planned for the future. It feels as though we have become accustomed to increases in the consumption-tax rate.
When the rate was previously raised to 8%, the economic downturn exceeded expectations, prompting explanations. The GDP growth target at the time was also substantially deferred. The administration is moving ahead with the introduction of a reduced tax rate.
What Is the Reduced Consumption Tax Rate?
It is a system under which necessities of life are subject to a lower consumption tax rate (or none at all), while luxury goods are taxed at the ordinary rate (10%).
Because the tax rate differs according to what is sold, you can imagine how daunting the required response will be.
The Japan Federation of Certified Public Tax Accountants' Associations President Also Commented
The president has made the federation’s opposition clear. In addition to the burden on people running businesses, the burden on tax accountants is also substantial. If only we could raise our fees... (laughs)
… [omitted opening]
The Japan Federation of Certified Public Tax Accountants' Associations has long strongly argued in its tax-reform recommendation papers that the single-rate system should be maintained, and has called for consideration of introducing a refundable tax credit system as a measure for low-income earners. This position reflects the difficulty of selecting covered items fairly and of separate accounting methods; the increased administrative burden on businesses; the system's inefficiency as a measure for low-income earners; the risk that fiscal consolidation would be undermined and social-security benefits would need to be restrained; and the prospect that the simplified taxation system would become complex.
Introducing multiple tax rates would diminish the advantages of consumption tax as a system in which “a single rate is fair, neutral, simple, and broadly based at a low rate.” As a result, businesses with tax-payment obligations would require more complex administrative processing than before. In particular, small and medium-sized businesses and small-scale businesses would be forced to bear not only these administrative burdens but also excessive costs, such as personnel expenses, needed to accommodate multiple tax rates. Government administration costs would also increase.
[Omitted below]
Editorial Policy at the Time of Publication in 2015: We Will Continue to Follow This Matter
It is still at the consideration stage, so nothing has been finalized.
However, because this matter will be implemented together with the introduction of the 10% rate in the fiscal 2015 tax reform outline, an immediate response may be required in that event.
Business owners and accounting professionals need to be prepared.
Editorial policy at the time of publication in 2015: We will continue to follow up on this matter in this article as developments arise.