How can ‘strong economy’ be built with consumption tax hike?

Japan Press Weekly

Japan Press Service Co., Ltd. is the only news agency providing information of progressive, democratic movements in Japan

How can ‘strong economy’ be built with consumption tax hike?
Akahata ‘current’ column

“Almost 70 percent of small- and medium-sized businesses are said to be in deficit,” said my friend, who is a licensed tax accountant.

When I nodded in agreement, he went on to say, “The reality is much worse,” then raised several examples of small- and medium-sized enterprises (SMEs) he is counseling. Even when in the black, they are having a hard time to maintain their businesses. However, they cannot reduce the number of employees because a cut in the workforce would mean a loss in skills.

Presidents of such companies are trying every conceivable means to provide employees’ salaries out of their own pockets, even to the point that their wages are lower than any of their workers’ wages. Others can hardly meet their monthly expenses. They may have to sell off some of their own property. “If including such firms, 80 to 90 percent of all SMEs are operating at a loss,” according to my friend.

Corporate taxes are levied on business entities’ profits. Therefore, their reduction do not benefit companies with a financial deficit: they are not paying such taxes in the first place. The consumption tax, however, is imposed on everyone regardless of debt. If companies cannot cover the consumption tax levied on costs with their sales, they have no choice but to make up for the deficiency with their own money.

“If the consumption tax rate is raised to 10 percent, small-factories here will collapse one after another.” Akahata on June 27 reported on the remarks above made by Sasaki Tadayoshi, the owner of a metal processing factory in Tokyo’s Ota Ward.

Business circles are aware that Japan’s corporate taxes are not “as high as it appears at first glance” as a senior member of the Japan Business Federation (Nippon Keidanren) admitted. Yet they are calling for their tax obligations to be lowered along with a consumption tax hike. The Kan Cabinet is trying to meet their demand. How can the ruling Democratic Party of Japan fulfill its election promise of creating “a strong economy” while neglecting SMEs?

- Akahata, June 28, 2010