The Japanese government plans to make purchases of daily necessities such as food and beverages eligible for an envisioned rebate scheme that is intended to underpin demand after next year's consumption tax increase, government sources said Friday.
The scheme, which entails subsidies for small and medium-sized businesses to offer reward points worth 2 percent of purchase prices, will essentially make it possible for consumers to buy the products at a 6 percent tax rate.
Prime Minister Shinzo Abe said earlier this week that the government will go ahead as planned with raising the consumption tax from the current 8 percent to 10 percent in October 2019. The tax rate on items classified as daily necessities such as food, nonalcoholic beverages and newspapers will remain at 8 percent.
The rebate scheme, which will likely run for six months to a year after the tax hike, will only be applicable to purchases made by credit card or other cashless methods.
Government officials will continue discussions on the details of the plan through November, the sources said.
The reduced tax rates and the rebate scheme are part of a package of measures the Abe administration has laid out to ensure the tax increase does not put a damper on private consumption as the previous hike from 5 percent did in 2014, causing the world's third-largest economy to slip into recession.
In order to balance out the expected surge in last-minute demand ahead of the tax hike and plunge afterward, the government also plans to expand tax breaks and subsidies for costly purchases such as cars and homes.
Abe and the ruling coalition of the Liberal Democratic Party and Komeito are struggling to assuage the public's concerns over the tax hike ahead of a House of Councillors election next summer.
Despite the risks, the tax hike is seen as necessary to fund healthcare and pensions for a fast-graying population while reducing the country's public debt, the largest among advanced economies at more than twice the size of gross domestic product.
Under the rebate scheme, the government will grant subsidies to credit card companies who will give users reward points based on purchases made at small and medium-sized retailers, restaurants and hotels.
Skeptics say the plan will not be enough to underpin consumer spending, however. The National Federation of Shopping Center Promotion Associations has called for the use of "premium vouchers" that have more purchasing power than the price they were bought for.
The government also plans to include in the scheme other payment methods such as those made by reading QR codes with smartphones, given many smaller businesses in Japan do not accept credit cards due to the difficulty of installing card readers and high commission fees.
According to the industry ministry, Japan has a lower percentage of businesses that take cashless means of payment compared to China and South Korea. By introducing the scheme, the government hopes to boost the number.