Price hikes and tax-related rule changes await Japan in October

Last Updated on September 29, 2023 12:21 pm

Tokyo : Japanese households will see their budgets further squeezed by a new wave of price hikes scheduled for October on food and services, while freelancers and those self-employed may have to shoulder higher tax burdens under a new invoice system.

The persisting effects of a weaker yen, which inflates the prices of imported raw materials, are largely blamed for the price hikes as more and more Japanese firms pass them onto consumers. This, in turn, threatens to dent consumer sentiment when real wages are not rising.

Prices of over 4,500 food items are set to increase in October, the start of the fiscal second half for many Japanese companies, more than double the figure in September, according to research firm Teikoku Databank. The number fell by half when compared with a year ago, but it still adds to the pain already felt by consumers as everyday goods have become pricier.

J-Oil Mills is raising its olive oil prices, citing a heatwave hitting European producers, higher transportation costs and a strong euro against the yen. Processed meat firms are hiking prices by up to 20%.

A liquor tax revision will also come into effect, meaning that “third-category” beer-like alcoholic beverages will not be as cheap as before as Japan is raising the tax by ¥9 per 350-milliliter can. The corresponding rate for regular beer will be cut by about ¥7.

Price hikes are also spreading to services.

A one-day high-season ticket for Tokyo Disneyland, currently ¥9,400 ($63) per adult, will cost ¥10,900. Japan Post is raising fees by an average of 10% for its Yu-Pack parcel delivery service.

While the government has been limiting the rise in household utility bills, electricity and city gas prices will still increase in October. However, eight of the nation’s ten major power companies plan to reduce them in November.

Prime Minister Fumio Kishida has instructed his Cabinet ministers to draw up a new economic package, including inflation-relief measures, by the end of October.

The government has already decided to extend subsidies used to rein in rising gasoline prices, as well as those to reduce household utility bills beyond this fall.

Rising energy and food prices post a challenge for Kishida at a time of simmering speculation that he will dissolve the Lower House for a general election.

Inflation accelerating at a pace not seen in decades threatens to derail the relatively robust economic recovery experienced in recent quarters from the COVID-19 pandemic fallout. Pent-up demand for services, such as dining out and traveling, has aided the economy up to now.

While concerns are growing about rising COVID-19 cases in Japan, people who receive treatment will need to shoulder some medical costs, including paying up to ¥9,000 for antiviral drugs, as the legal status of the novel coronavirus was downgraded to the same level as seasonal flu.

At the start of the second fiscal half, Japan is launching a new invoice system designed to accurately indicate tax payments by businesses as multiple consumption tax rates are applied in Japan — 10% for most products and 8% for food and other specified items.

It will require the seller of a product to issue an invoice, which includes the consumption tax amount and other transaction details, to the buyer. The document is necessary to receive the tax credit.

Freelancers and others affected by the new rules have expressed opposition to the launch, joined by opposition party lawmakers. Those who earn less than ¥10 million ($67,000) a year in taxable sales and are exempt from paying consumption tax would have to pay the tax if they choose to issue an invoice. Many are reluctant to introduce the costly system, but they are concerned that they would lose business partners who need such documents for tax deduction.

The hometown tax system that has gained in popularity is also changing.

The program allows taxpayers to donate funds to their hometown or municipalities they want to support and get tax deductions. They can also receive local specialties in return.

The central government will reduce the ratio municipalities can spend on such specialty item from the donations. Because of that, municipalities will likely increase the amount taxpayers have to donate to receive the goods.

On the income side, the minimum wage is set to increase gradually, with the national hourly average topping ¥1,000 for the first time.

The government will also address the issue of “income barriers,” or income thresholds at which part-timers, often dependents of their spouses, must start paying or pay more income tax and social insurance premiums when their income exceeds certain levels.

Companies that pay for the social insurance premiums of such employees will receive up to ¥500,000 per worker.

The barriers are blamed for discouraging part-timers from increasing work hours. The rise in minimum pay will help such workers maintain salary levels with shorter work hours, raising concern that the country’s labor shortage will become more serious.