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Japan MOF seeks tax rebate on food and drinks when tax rises in 2017: sources

[TOKYO] Japan's Ministry of Finance will propose introducing tax rebates on food and non-alcoholic drinks, including dining out, to ease the burden for low-income earners when the sales tax rises to 10 per cent in 2017, government and ruling party sources told Reuters.

The proposal, to be submitted for a ruling party debate on Thursday, would effectively provide exemptions from the planned tax hike, while maintaining a single nominal rate for the national sales tax.

The government plans to raise the national sales tax to 10 per cent in April 2017 from 8 per cent in a bid to rein in massive public debt. Last year's tax hike to 8 per cent from 5 per cent hit households hard, and tipped the economy into a recession.

"Our basic concept is to reduce burdens on low-income people while overcoming problems such as troublesome office procedures" multiple sales tax rates would cause to businesses, Finance Minister Taro Aso told reporters after a cabinet meeting.

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Mr Aso said the rebates would apply to a limited amount of purchases.

Jiji newsagency quoted the Liberal Democratic Party's tax panel chief as saying the ruling coalition debate would focus on the ministry's proposal.

There are some concerns that, because shoppers would pay a 10 per cent sales tax when purchasing food and drinks and get tax rebates later, they may not feel reduced tax burdens at the time of shopping.

Others worry about security and privacy, as the proposal seeks to use a national identity number system - similar to a social security number in the United States - it plans to introduce for tax and social security to administer tax rebates.

For the shoppers who use the national identity number, the rebate could be worth as much as the 2 percentage point rise in the sales tax, the sources said.

The shoppers would be given 'points' on purchases of food and drinks, including dining out, which will be calculated for tax rebates later through individual bank accounts, they said.

The ministry has not estimated the cost of tax rebates, but earlier estimates showed it would reduce tax revenue by up to 1.3 trillion yen (S$15.4 billion)if food and non-alcoholic drinks were subject to lower tax rates.