Japan Press Weekly

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2013 October 16 - 22 [ECONOMY]

Large firms shifting consumption tax burden onto subcontractors and consumers

Major corporations are evading consumption tax payments by shifting the burden onto their subcontractors and consumers.

Business operators producing annual sales of more than 10 million yen are obliged to pay the consumption tax to tax agencies. The amount of the payment is the difference between what they received in sales and what they paid in purchases.

The Finance Ministry, however, explains that the consumption tax “is included in the prices of products or services business entities sell, successively shifted onto, and finally paid by consumers who buy the products or receive the services.”

Meanwhile, smaller companies and subcontractors are often urged by their larger business partners to remove the consumption tax cost from prices charged. In order to survive the competition with bigger stores, small retailers sometimes have no choice but to offer customers a 5% discount, equivalent to the current rate of the consumption tax.

In a survey conducted by four groups of small- and medium-sized enterprises asking if they will be able to shift the consumption tax onto their prices when the tax rate increases from the current 5% to 8%, 71% of business firms making 10 million to 15 million yen in annual sales answered, “No”. Even among companies with 100 million to 200 million yen in sales, about half said they will not be able to do so.