Economic effect on Japanese Consumption Tax

It will be 8% consumption tax in April 2014, 3%-raise, and companies that plan to enter Japan market are anxious about its economy. This is 3rd time that Japanese experiences the raise of the tax. Does they get used to?
Many experts predicts temporarily drop of GDP because of hold-off buying due to hurried purchase of products. They also say it will pick-up shortly but private consumption trend will be too hard to analyze.

number of built houses in Japan, 2008-2013

One of the most referred things as hurried purchase prior to the raise is house. It is tricky because the tax rate is determined at the transfer of ownership. It takes long to build and if the construction lasts after April, one had to pay 8% tax. Japanese government have also announced more tax reduction on purchase of houses after the raise to reduce rush of the demand. It seems to be successful.

Another example is car. It sometime takes longer lead time when the model is very popular. The usual lead time is 3 months and it seems no effect as of November. There is the other reason of less demand. The policy that cars with higher fuel efficiency get less consumption tax and automobile tonnage tax had introduced for 3 years since 2010. Many had bought new cars already.

car registeration in Japan, 2012-2013

Psychological impact on private consumption will be hard to forecast. The reasons are :

  1. Abe Cabinet is requesting large companies to raise payment and some responses. Exporting firms have reported good sales and profits due to low currency rate. Economic condition might have been improved at that time.
  2. The government might introduce lower rate for goods that the poor consumed largely, such as raw food and books although IMF indicated many problems on multiple rate.1 If so, people might be favored on the policy and forget the raise sooner.
  3. People get used to the raise. When, for the first time, the tax had introduced, surge and drop of sales had occurred. Some raised prices to take advantage of the opportunity and others demanded their suppliers price-down, implying change of deal. As for the second time, it became a routine. Not so many people remember what had happened.

References

1. Raising the Consumption Tax in Japan: Why, When, How?

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