Japan's retailers hasten to prepare for consumption tax hike

Tokyo

WITH one month left until the Oct 1 consumption tax rate hike to 10 per cent, retailers are hastening preparations for a more complicated tax scheme that incentivises cashless payments, keeps the 8 per cent rate on daily necessities and introduces a reward points system for small and midsize retailers.

The Ario Kitasuna store of large electric appliance retailer Nojima Corp in Koto Ward, Tokyo, put up a sign last Friday indicating that there were "33 days left until the tax hike". As Nojima uses electronic price tags in its stores, the displayed prices will automatically change over to reflect the higher consumption tax on Oct 1.

From October, food and beverages - excluding alcoholic drinks and eating out at dining establishments - and other items considered daily necessities will continue to be taxed at 8 per cent.

Thus, the preparations by retailers for this consumption tax increase have been more elaborate.

In addition, a reward points system will be introduced for nine months until June 2020, in which the government will provide subsidies for payment service providers as financial resources to implement the system.

When consumers buy goods at small and midsize shops with cashless payments, they will be given 5 per cent of the purchase price in reward points.

The rate for reward points will be 2 per cent at franchise chains of major operators, such as convenience stores.

For consumers then, the new scheme will initially present five different effective tax rates - 3 per cent, 5 per cent, 6 per cent, 8 per cent and 10 per cent - according to the types of shops and goods.

Efforts by retailers to help consumers understand these differences are being noted.

About 22,000 convenience stores nationwide with in-store dining spaces will display posters requesting that customers notify a store employee that they will consume purchased food and beverages on the premises.

Since it may also be difficult to distinguish whether goods on the same shelf will be taxed at 10 per cent or 8 per cent, Inageya Co, which operates about 140 supermarkets in the Tokyo metropolitan area, planned to distribute from Sunday handbills that clarify the tax rate of its main goods.

Major convenience store chain Lawson Inc also will include kei, a kanji character meaning "reduced" tax rate, on its price tags and receipts.

Meanwhile, only some industries so far have been enjoying the last-minute spike in demand for goods seen ahead of the consumption tax rate hike.

New housing starts in July declined by 4.1 per cent year-on-year to 79,232, according to Land, Infrastructure, Transport and Tourism Ministry data released last Friday. Owned houses, including custom-built homes, increased by 3.3 per cent from a year earlier. A ministry official said the effect of last-minute demand has been limited.

According to the Japan Automobile Dealers Association and other entities, sales of new vehicles in July rose by only about 4 per cent from a year earlier.

Odakyu Department Store Co held a men's clothing campaign in October last year, but will start the sales campaign in September this year.

On the other hand, it will hold a sales campaign for Hokkaido products in October this year, one month later than that last year, because it expects to attract customers even after the consumption tax rate hike.

An Odakyu public relations staff member said, "We want to attract customers steadily before and after the tax hike by coming up with ways to hold sales events."

Koya Miyamae, a senior economist at SMBC Nikko Securities Inc, said: "Through the reduced tax system and the reward points system, the increased burden on consumers will be limited. But consumer sentiment typically sees a downturn even before a tax hike, so there is a fear that this sentiment will lead to a cooling of the economy." WP