Tedious? Important? I've organized the mechanics of the 0% consumption tax debate

Before the official announcement of the recent House of Representatives election, debates were held multiple times by the leaders of each party. Among them, the theme of "whether to make the consumption tax on food 0%" was brought up every time.

In particular, Representative Tamaki of the Democratic Party for the People asked, "Is it a tax-exempt transaction? Or is it a zero-rated transaction?" during this discussion, which caused some confusion among viewers.

Those who are favorable toward Representative Tamaki might have felt, "Even if I don't fully understand it, he must be saying something correct." On the other hand, those who do not support him might have thought, "Don't waste time on detailed arguments."

In the first place, it is a fact that the party leaders who included this theme in their manifestos could not answer clearly. Therefore, this time, I have organized whether this "tax-exempt/zero-rated" debate was really necessary through a simulation.

Review of tax-exempt and zero-rated

• Tax-exempt

  • Consumption tax at the time of transaction: Not charged (no tax on the invoice)

  • Purchase tax credit: Not possible → Consumption tax paid on purchases and expenses becomes a total cost

  • Merit: No procedures required, simple

  • Demerit: Business costs tend to increase

• Zero-rated (0% tax)

  • Consumption tax at the time of transaction: Billed amount is 0 yen (no burden on the consumer)

  • Purchase tax credit: Possible (refunded later) → Consumption tax paid on purchases and expenses can be recovered

  • Merit: Business costs are kept down, making it easier to secure profits

  • Demerit: Procedures such as issuing invoices and filing returns are troublesome

💡 In a nutshell
Tax-exempt = Costs increase, no procedures required
Zero-rated = Costs decrease, procedures required

Setting the prerequisites

First, let's assume the prerequisites.
For the sake of simplification, we will consider the case of purchasing directly from a farmer and providing food.

*The farmer is set to secure the same 900,000 yen profit, and expenses are common to retailers and restaurants.
*Since the farmer has paid 100,000 yen in consumption tax for fertilizer and fuel, whether this amount is tax-exempt or zero-rated will greatly affect the subsequent profits of retailers/restaurants and consumer prices.

Now, let's simulate each case.

① Farmer → Retailer → Consumer

A. In the case of tax-exempt

B. In the case of tax exemption (0% taxation)

② Farmer → Restaurant → Consumer

A. In the case of tax-exempt

B. In the case of tax exemption (0% taxation)

Comparison

First, simply comparing the profit amounts results in the following.

As expected, it is clear that restaurants are in a difficult position.
Since no one runs a business knowing it will result in a deficit, in the end, it will be reflected in the price reaching the consumer.

Also, when providing the same item as a product, it is conceivable that restaurants will incur higher common expenses for the sake of simplification, making the situation even more severe.

Considering overall profit, it is understandable that tax-exempt transactions should be used.
In other words, one should question whether those who could not answer immediately that it should be a tax-exempt transaction were actually thinking about it seriously.

I couldn't help but laugh when Noda, the co-representative of the Centrist Reform Alliance, switched from tax-exempt to tax-free in one day.

Furthermore, there are also problems when using tax-exempt transactions.

The first is that there is a possibility that operating funds will run short before receiving the refund.

The second point is whether the farmer will set the selling price on the premise of receiving a refund.
For example, in the case of Farmer → Restaurant → Consumer (tax-exempt transaction),
if the farmer passes on the consumption tax of the purchase amount to the price due to the hassle of invoices or refund requests, or to secure operating funds,

It becomes like this, and the deficit amount expands from 300,000 yen to 400,000 yen.
Considering the actual situation of farmers, this is also considered a fully plausible response.

Summary

Personally, I think this discussion was necessary. If we are to realize a 0% consumption tax, the impact on businesses and the economy will change significantly depending on whether it is made tax-exempt or tax-free. That is precisely why it is important for a party leader to understand it correctly.

However, whether the other party leaders couldn't keep up with the understanding or weren't thinking about it very seriously, there were many moments where the discussion drifted slightly away from its essence.

Amidst that, I think Representative Tamaki was able to show the difference between his own insight and the seriousness of the other party leaders by taking up this complex theme. However, since the Democratic Party for the People's core policy is not the consumption tax, it is also a fact that from the second time onwards, I thought, 'Instead of being dragged into the discussion, please talk about your own policies.'

In the end, while this discussion was necessary, I think it became an example of how depending on political maneuvering and timing, a precious opportunity to appeal for policies can slip away.

Also, it might not have resonated much with people who are not favorable toward the Democratic Party for the People. Since I also feel like I finally understood it through this organization, I don't think there was anyone among those watching that program who fully understood it.

Even so, I imagine that the fact that each party leader toned down talk of this policy once the election campaign began means they had something to think about.

Also, since there is a dissolution of the House of Representatives, I have summarized what I have recently thought about each political party and other articles that caught my attention.