KYODO NEWS - Oct 16, 2018 - 00:30 | All, Japan

Japanese consumers and businesses showed a mixed response to the government's decision Monday to lift the consumption tax rate to 10 percent in October next year as planned, with some understanding the need to restore fiscal health and others concerned over the impact on the economy.

The retail and some other sectors voiced wariness about possible confusion at stores, as the government will keep the tax rate on daily necessities such as food and drinks, excluding at eateries and on alcoholic beverages, at the current 8 percent.

"The tax rise will affect my living but it can't be helped if it's needed," said a 59-year-old woman in Tokyo. But she said she was worried about how long the lower tax on daily goods will last, adding "it may be raised eventually."

Business leaders backed the tax increase as necessary to restore the worst fiscal health among industrialized countries, given that Japan's rapidly aging population will mean increasingly higher social security expenses such as medical and pension costs.

"The consumption tax hike has already gained public approval," Hiroaki Nakanishi, chairman of the Japan Business Federation, said, referring to the victory by Prime Minister Shinzo Abe's Liberal Democratic Party in the general election last year when Abe dissolved the House of Representatives seeking a public mandate on the plan to lift the consumption tax.

But auto and real estate industries are bracing for a chill in spending following the tax rise.

"We experienced a severe impact in past cases of consumption tax increases which led to a surge in demand ahead of the increase but a plunge afterward," said an official at an automaker.

An executive at a real estate company said he expects "a certain level of demand surge before the tax hike" but that he is also worried about the negative impact on the market in the long term.

Retail shops will need additional work in identifying which items are subject to which tax rate and update their cash registers accordingly.

Hiroyuki Nagata, a liquor shop owner in Osaka, said he agrees with the tax rise but that the reduced tax rate on daily goods will "duplicate paperwork as my shop has items for both tax rates."

"We can hardly afford (new cash registers) with the subsidies from the government. It would be much easier if it was a flat 10 percent rate," Nagata said.

The National Tax Agency shows on its website how the reduced tax rate will be implemented by giving examples, but an agency official said it has already received numerous inquiries from business operators. "The basic points are not well informed yet," the official said.

Lawmakers of the ruling LDP reacted positively to going ahead with the tax hike and vowed efforts to implement measures to mitigate the impact on small and midsize firms. But some lawmakers in the House of Councillors, who will prepare for elections next year, were worried about the impact on voters.

"It would be a lie if I say there is no influence on votes. There's no way that everyone is happy about it," said an upper house member.

Opposition parties, meanwhile, were united in opposing the tax increase, saying the Japanese economy is not strong enough to withstand the heavier tax burden.

"Individual spending is growing but only modestly. That's somewhat worrisome. But the Japanese economy can bear the consumption tax rise," said Katsuyuki Hasegawa, economist at the Mizuho Research Institute.

"If the consumption tax cannot be raised at this stage, it would be more difficult in the future," he said.

Japan PM Shinzo Abe says to raise consumption tax in Oct. 2019 as planned