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Tax structure encourages getting wasted

Monday, March 3rd, 2014

Zero's not in it: Selection of Suntory chuhai at discount store

Zero’s not in it: Selection of Suntory chuhai at discount store

There’s no end to speculation as to how the consumption tax increase in April will affect the country, socially as well as economically. Last week, Tokyo Shimbun published a conversation between a college professor and one of its reporters about the effect on beer prices and, in turn, beer consumption, which last year declined for the ninth year in a row.

When the reporter asks the professor about this effect the professor feigns amazement that the reporter, who specializes in tax matters, didn’t know that “42 percent of the price you pay for your beer is already tax.” He goes on to explain that the beer tax is a holdover from the 19th century, when beer was considered a luxury item. Since then it’s become much more the drink of common people thanks to improved and cheaper refrigeration, but the government liked the revenues too much and maintained the tax structure for beer. To the professor’s thinking, the tax should be pegged to alcoholic content, and since beer’s is relatively low the tax should also be lower than it is for other alcoholic beverages.

It’s easy to get people to pay the tax since it isn’t indicated on the package or even at the place of sale, unlike the consumption tax. For the sake of reference, when you buy a 350-ml can of beer you pay ¥77 in tax. If you bought the same volume of whiskey you’d pay ¥129 in tax; shochu ¥70, nihonshu ¥42 and wine ¥28.

Basically, that means the consumption tax is levied on a tax, since the consumption tax is determined by the price that the wholesaler and retailer pays for the product, which, by the time they receive it, already includes the alcohol tax that is levied at the manufacturing stage. “When the government said they’d increase the consumption tax, people got angry,” says the professor. “But no one says anything about the alcohol tax, because people don’t notice it.” The reporter thinks that a “tax on a tax” violates the principle of taxation. The professor doesn’t disagree, and adds that beer accounts for half the revenues brought in by the alcohol tax. Because beer makers are large companies with responsible accounting practices, it’s easy for the Finance Ministry to collect the tax. The reporter says, “Why don’t manufacturers get angry?”

Actually, that’s why they started making the “beer-like” happoshu in the late ’90s. Because the ingredients used in happoshu are different from those that define beer for tax purposes, the beer tax doesn’t apply, and so makers could sell it at a much lower price. The government, of course, didn’t like that and eventually raised the tax rate for happoshu, too, though not as high as it is for beer (¥46 for a 350-ml can). Makers came back again with dai-san (third type) beverages, which use fermented soybeans for flavor instead of hops, and that got around the happoshu tax (¥28 for 350-ml). But while these new, cheaper brews outsold “real” beer handily, sales for all three beverages have still decreased over time, due to the shrinking population and a younger generation of consumers who don’t drink as much as their parents did.

In that regard, beer makers don’t see much of an impact of the consumption tax hike on beer and beer-like beverage sales; or, at least, they don’t see any point in trying to offset the hike. But they are modifying their lines of canned drinks that contain shochu, colloquially called chuhai. As the price of chuhai goes up thanks to the consumption tax, they are increasing the alcohol content. In fact, many companies have already added more alcohol to their chuhai products.

Kirin Beer increased its Hyoketsu Strong from 8 percent to 9 percent alcohol, and in April it will boost its Hon-shibori Lime chuhai drink from 6 to 8 percent.

Asahi Beer is already advertising its new Karakuchi Shochu Highball, which is 8 percent, in a bid to persuade normal fans of high balls — whiskey and soda — to switch to shochu and soda. That’s a full 5 percentage points higher than Asahi’s other chuhai, Slat, and both beverages will be sold for the same price. (Note: Slat is aimed at young women and the word suggests slimness, though an English speaker may be forgiven for thinking the name an unfortunate choice for such a target group.)

Suntory’s chuhai product, -196 Degrees C Strong, which enjoyed a 22 percent share of the chuhai market in 2012 thanks to its already hefty alcohol content, will be strengthened from 8 to 9 percent. The company told Asahi Shimbun that it expects sales to grow by 8 percent.

The target is middle-aged and elderly men, the main demographic for alcoholic beverages anyway. Makers think they will be attracted to the cost effectiveness, according to the Asahi, which means they can “get drunk more easily” for the same amount of money. In many countries, tax on alcohol is referred to as a “sin tax,” since it has a double-edged purpose: raising revenues on a product or service that may be harmful to society, on the one hand, and on the other checking consumption of the harmful product or service by making it more expensive.

This latter purpose doesn’t seem to apply in Japan, where alcohol companies have figured out a way to use the tax structure to their advantage. There’s no sin in that.

For young women sex industry offers safety net the government doesn’t

Wednesday, February 26th, 2014

A sign teases sexual services.

A sign teases sexual services.

One of the pillars of Abenomics is getting more women to join the workforce, but since last fall, when a young woman in Osaka was found in her apartment starved to death, the media has been reporting dire statistics about poverty among women. According to government statistics, one-third of females who are productively employable and living alone make less than ¥1.14 million a year, which demarcates the government’s poverty line.

The peak year of employment in Japan was 1997, when 38.92 million men had jobs and 26.65 million women. In 2012, the number of male workers had dropped to 36 million, while that of females had declined less, to 26.5 million. In 2012, women made up 42.3 percent of the workforce, a three percentage point increase since 1980. However, the stability of that work seems to be going in the opposite direction. The number of non-regular and part-time workers is on the increase, but the number of women in this group is disproportionately larger: 57.5 percent for females to 22.1 percent for males. Without regular employment and the opportunity for periodic pay raises, these women invariably fall into a cycle of poverty from which they can never escape. The situation for single mothers is even worse: 80 percent of those who work fall below the poverty line, even with government assistance factored in.

NHK’s evening in-depth news program, “Closeup Gendai,” has aired a series of reports on poor young women. One program broadcast in late January profiled several. There was a teenage girl working at a convenience store to support her sick mother and three siblings while taking a high school equivalency course that she hopes will lead to a night school program that will earn her a license to teach nursery school, but the program will cost her ¥80,000 a month, which means she’ll have to take out a loan that will be paid back when — and if — she gets a job. There’s a woman from Aomori Prefecture who worked three jobs but still couldn’t make enough to support herself since the minimum wage in the prefecture is only ¥650, so she came to Tokyo, where the minimum wage is higher, but so are living expenses.

Experts interviewed by NHK point out that women have traditionally taken low-paying service jobs because they weren’t expected to stay on, eventually marrying and having children. But now young women don’t have as many marriage prospects due to lower incomes for marriageable men. More of them have to support themselves, but there are only these low-paying service jobs which aren’t enough to live off of. The cycle of poverty is already in gear, because these women’s parents are themselves poor, which is why they no longer live with them. When a reporter asks one woman if she hopes to have children one day, she looks at him as if he were crazy. She can’t even feed herself. How could she feed a child?

But there are women trying to do just that. One 28-year-old single mother in Hiroshima is raising a 2-year-old and a 4-year-old. She makes ¥100,000 a month and receives a child allowance of ¥40,000 from the government. She herself grew up in a poor family and had to start working when she graduated from junior high school.

But according to one program in the series there is an area of hope for such women: the sex industry (fuzokuten). Massage parlors and escort services offer not only dormitories for staff, but also daycare if the workers have young children. Want ads indicating such benefits are common, but the NHK director could only find one company that would agree to coverage. The camera shows the manager of the business talking on the phone, telling a customer that the fee is “¥19,000 for 90 minutes, if you don’t state a preference for a worker.” At this company, 40 percent of the fee goes to the company and the rest is kept by the worker. The manager says they get a lot of applicants, especially from single mothers because of the daycare. Though some businesses run their own daycare, most contract with outside services. The dorm is also a big draw, though the manager points out that “sometimes there are more staff than there are available rooms.”

One of the employees interviewed by NHK says she is 21 and has an 18-month-old daughter. She had to start working right after the girl was born, but there are no daycare facilities that accept infants. She had no choice but to work here, and in six months she has managed to save ¥700,000. She makes ¥300,000 a month. “When I’m 25 I’ll probably have to quit, and my parents don’t know I work here,” she tells the director, but by that time she hopes to have a lot of money saved. Another interviewee is in her 30s, also a single mother. She is here to look for a job. She once worked in the sex industry but quit when she got another job. Then she fell ill and applied for welfare, but was told it would take two months to check her background and than another month to process her application. She can’t wait three months.

During the seven days that NHK covered the business, it hired 15 new employees. Though the information reported on the program is sobering, several Internet commentators have pointed out that these conditions have always been the norm in the sex industry, but it’s only now that people are paying attention because of the economic situation.

 

Image via furibond

Consumption tax rush approaching peak time

Tuesday, February 18th, 2014

Curb your enthusiasm: Don't rush out and buy an aircon to beat the tax hike since it will probably be cheaper afterwards anyway

Curb your enthusiasm: Don’t rush out and buy an aircon to beat the tax hike since it will probably be cheaper afterwards anyway

Retailers continue to enjoy good business in the runup to the consumption tax hike on April 1, but some are a bit anxious that consumers may not understand the situation sufficiently. Tokyo Shimbun visited a few Tokyo department stores where the rush to buy is especially intense, causing them to post clarifying announcements to head off any attendant disappointment.

At Isetan, these notices are posted prominently in the furniture and bedding sections, as well as the eyeglass section, meaning departments where people order merchandise and then take delivery later. As one Isetan employee explained to the paper, the consumption tax is applied on the day of receipt of merchandise, not on the day it was ordered or even on the day it was paid for. A good portion of department store sales are order-made products, and the notices are cautioning customers to make sure they understand the date their stuff will be ready to pick up, otherwise they may end up paying more than they thought they would.

Keio department store is telling all its customers about the rule so that “there is no misunderstanding.” Daimaru Matsuzaka, near Tokyo Station, has seen sales of order-made men’s suits climb to 14.4 percent higher than last year, a new record, but the closer they get to March the more nervous they are since some suits take longer to make than others. Takashimaya in Nihonbashi is apparently the most conscientious department store, posting very detailed explanations in all its sections that insist the earlier you order something, the more likely it will be you can avoid the extra 3 percent charge.

However, a related article in the weekly Aera says that consumers shouldn’t worry that much, since there’s a good chance people will buy something now to avoid the tax hike only to end up paying more. Some retailers are not as straightforward as the above-mentioned department stores, using the rush as a means of getting customers to sign up for credit cards in order to compound their savings without realizing that in the end they’ll probably have to pay handling fees that will negate such savings, unless they happen to be frequent patrons of the store, in which case they probably already have a card. The magazine interviewed a few housewives who plan to make big purchases ahead of the tax hike.

One woman says she is going to buy all new household appliances, while another in her early 30s will buy baby shower and wedding gifts for friends who will celebrate these happy events in the near future, but as she said, “often these gifts go on sale in July, so I don’t know if I’m actually saving money by buying them now.”

A financial planner told Aera that it may be a mistake to buy some big ticket items now. Air conditioner sales, for instance, tend to be their lowest in March, which is between the cold and the hot seasons. That’s also when manufacturers put out new models, which means last year models will be quite cheap, so he advises to wait. Even after April 1, the price could be considerably less than they are now, even taking the tax hike into consideration. But automobiles and home improvement work, he says, should be ordered right now, if it already isn’t too late, because they require time before final delivery and there are no bargain sales associated with either. For mini-cars (kei jidosha), in particular, now is the time to buy since next year the car tax for buying one will increase by 50 percent.

In the end, here are items that Aera recommends buying now to beat the tax: household appliances; over-the-counter drugs that can be stored for long periods, like aspirin; gold, since the purchaser can buy at a lower tax rate and sell at a higher one; theme park tickets; long-term commuting passes and train tickets in bulk (kaisuken).

Items that Aera doesn’t recommend buying now: PCs and TVs, because they always go on sale; apparel and accessories, which tend to be much cheaper during semiannual bargain sales; real estate and stocks; gems and platinum, which, unlike gold, are more vulnerable to price fluctuations; and everyday necessities like toilet paper, which people all over the world tend to buy up whenever there is some sort of financial panic.

Regional bank hits on novel way to attract business

Wednesday, February 12th, 2014

Banner advertising housing loans outside branch of Keiyo Bank in Inzai

Banner advertising housing loans outside branch of Keiyo Bank in Inzai

Lottery winners who hit the jackpot are always good news stories, but the anonymous lucky individual who was the subject of reports in all major media on Feb. 3 represented a different angle on the topic. Instead of being announced by the authorities who administer the Year-end Jumbo Takarakuji lottery, the ¥700 million prize was publicized by a regional financial institution, Chiba Prefecture’s Keiyo Bank. That’s because the winner of the jackpot didn’t actually have the winning ticket in his or her possession. The bank was holding it for safe keeping.

With interests rates on time deposits being so low for so long, banks, especially smaller regional ones, have a tough time convincing people to become customers and usually resort to special premiums or deals. Keiyo’s is to offer lottery tickets as incentives to open savings accounts. For every one million yen deposited in a three-year teiki yokin (time deposit account), the depositor receives five lottery tickets per year for various drawings. Keiyo, however, only supplies the customer with the number of the ticket, not the ticket itself, which it holds on to. When the drawing is carried out the customer checks the number against the winners and if there’s a match the customer contacts the bank, which then gives the customer the ticket for him or her to cash in.

In this most recent case, the drawing was conducted in early January and the bank, knowing that one of its customers had won, waited for the customer to call. The person didn’t.   After a month, the bank finally called the individual with the happy news.

What’s most interesting about the story is that it isn’t the first time a Keiyo customer has hit it big. The bank has been offering the lottery incentive since March 2007, and in the intervening years there have been 34 ¥1 million winners, two ¥5 million winners and one ¥100 million winner. These numbers give the impression that Keiyo customers have a higher probability of winning, but according to a lottery expert interviewed by Tokyo Shimbun it’s difficult to figure the odds since the bank has never released the total number of tickets it has bought for customers over the years, but likely it isn’t that much because Keiyo is, after all, a regional bank with a limited reach.

As a reference, interest on a three-year time deposit is 0.03 percent, which means for the first year of a ¥1 million account the customer earns ¥300. That amount would buy one ¥300 lottery ticket before the government deducts its 20.315 percent tax on interest.

Side note: In December we wrote about the Post Office lottery for New Years cards. In case you still have them lying around and didn’t check the winning numbers here they are: If the last five digits on any of the cards you received are, in order, 9-7-0-8-5 then you win ¥10,000. If the last four digits are 2-3-4-4, you win a prize of some sort of regional product. And if the last two digits are either 7-2 or 7-4, you win a sheet of postage stamps. You have until six months after the Jan. 22 announcement date to claim your prizes.

When will they learn: Old folks still falling for swindlers

Tuesday, February 4th, 2014

Bank flyer from Chiba police warning about telephone swindlers.

Bank flyer from Chiba police warning about telephone swindlers.

On Jan. 23, the Chiba prefectural police announced that in 2013 there 724 reported cases of telephone swindling targeting older people, a phenomenon that is still referred to as ore-ore sagi (literally, “it’s me, it’s me” swindles) though the modus operandi of the perpetrators have changed since it first became topical some years ago.

Originally, swindlers pretended to be members of the intended victim’s family and feigned some sort of trouble that required large sums of money to rectify, in which case the target was instructed to transfer the money to a specific bank account. Some media also call this crime furikomi sagi (bank transfer swindling).

Despite lots of publicity regarding this type of crime, swindlers are getting bolder. In 90 percent of the cases reported in Chiba, the swindler or an agent went to the home of the victim and either picked up the cash directly or, even more amazingly, picked up the victim’s ATM card and then withdrew the money himself.

Obviously, these persons weren’t impersonating a relative, which is why the media have yet to come up with a new memorable term. In many cases the swindler pretends to be a government official offering a tax refund or something similar and then acquires the card to carry out the transaction.

In others the swindler pretends to be a securities person with a can’t-miss deal that will make the person lots of money, and while this an old scam, what’s new about it is that the scammer actually shows up to collect the cash for the investment in person. Another new wrinkle in the swindle is using convenience store ATMs, since banks have become wise to the fraud and have installed security cameras and other devices to catch swindlers in the act.

Though the number of cases hasn’t increased appreciably the amount of money swindled has: ¥460 million, a new record for Chiba. That averages out to about ¥3.2 million per successful swindle. In 78 cases, the amount swindled was over ¥10 million. Nationwide the trend is the same.

As of the end of October the amounts swindled totalled ¥38.3 billion and analysts predicted the damage might go as high as ¥42 billion for the year. The total amount in 2012 was ¥38 billion. On the relative plus side Chiba police made 129 arrests of swindlers.

The police are understandably frustrated by the fact that their PR efforts have’t really had any effect, and have told the elderly public just to “not answer the phone,” which is possible to do since everyone has voice mail, even old folks. They advise to listen to the messages and then decide in a cool manner whether or not the caller is legitimate, which sounds like sensible advice, but then avoiding such scams in the past didn’t sound that difficult either, but apparently it was.

Special K: Mini-cars come of age in a maxi-world

Sunday, January 26th, 2014

Thinking inside the box: Honda's N-WGN

Thinking inside the box: Honda’s N-WGN

The nationwide used car dealer, Gulliver, recently set up a new venture called Gulliver Minicle, which deals only in kei-jidosha, often referred to as minicars in English, though here we like to call them K-cars, which make up a separate class of automobile. The engine displacement can’t be more than 660cc, and they were developed in the ’60s and ’70s for people with limited incomes.

When K-cars first appeared the engines were as small as 360cc, and have always been a point of contention for the U.S. automobile industry, which describes them as a “non-tariff trade barrier” because taxes for K-cars have been much less than they are for regular cars and thus are deemed as being unfair competition for infamously larger American cars — though it should be noted that U.S. automakers have tried to sell compacts in Japan.

K-cars have always had one glaring drawback. Because the engine is so small, they have to be light, and that means they are less safe. Consequently, families don’t buy them; or, at least, they didn’t until recently.

Gulliver’s launch of a retail entity that only sells used K-cars shows that there must be a viable market, since K-cars are already cheap and Japanese people aren’t big used car buyers. So far there is only one Minicle, in Morioka, and it has about 50 cars on display divided into three sizes: S, M and L, like apparel.

According to an article about the store in the Asahi Shimbun, there really isn’t much difference in the sizes, but the designations appeal to women, who are now the main target demographic for K-cars. There is even a play space in the store where kids can relax while mom is shopping for new wheels.

Gulliver is already planning Minicle stores in Hokkaido, Tohoku, Kyushu and the San’in region, and by 2018 expects to have about a dozen throughout Japan, mainly in the vicinity of regional capitals and not so much in the big three metropolitan areas.

In December, the Japan Light Motor Vehicle and Motorcycle Association estimated that 2.1 million K-cars would be sold in Japan during 2013, a new record. In contrast, sales of all other cars amounted to about 3 million. So while sales of minicars increased by 4.8 percent over 2012, sales of other cars decreased by 5.3 percent.

As a portion of all car sales, Ks increased by 2.4 points to 39.3 percent. The only other automotive sector that showed more growth was foreign (read: German) cars, whose sales increased by 9 percent, also a record. And in terms of production by Japanese automakers, 40 percent are now K-cars.

The obvious reason for the popularity of minicars is their price, but they’ve always been cheap. It’s their reason for existing in the first place. Some say that people bought them last year because the K-car tax is set to be eliminated sometime this year, but a more likely reason is increased safety and functionality.

More than a year ago, Daihatsu started selling a new version of its Move model that uses sensors to automatically reduce speed when it gets too close to the car in front of it. Though it’s offered as an option at ¥50,000, more than 80 percent of the buyers order it. In succession, similar options were added by Suzuki to its popular Wagon R model, for ¥42,000, and by Honda to its N-WGN model.

A Honda representative told Asahi that since 64 percent of K-car drivers are women, this option was incorporated specifically to attract them. A good portion of K-cars are bought as second cars, for shopping and shlepping the kids around. In the past, these women bought compact cars, but they’re switching over to Ks.

Nissan and Daihatsu have upped the ante by also offering windshields that cut ultraviolet rays, something else women demand. In addition, K-cars now have much roomier interiors than in the past and larger cargo areas. In truth, there isn’t much difference, performance-wise, between a K and a standard compact.

Which is why the U.S. is even angrier than before, because that makes the so-called trade barrier even higher to scale. Due to regulations and consumer sentiment, K cars aren’t marketable in America, and the Big 3 automakers aren’t going to manufacture them only for one market, but that could be changing. India seems ravenous for K-cars and Suzuki is quickly setting up factories and joint ventures on the sub-continent.

Some experts say that the U.S. Trade Representative’s gripe about Ks is actually a means of keeping pressure on other sectors, generating leverage to open Japan’s agriculture and insurance markets more, for example. Also, it gives the American government an excuse to maintain its own tariff to protect the U.S. truck market from low-priced Japanese imports.

Use it or lose it: Workers want companies to pay for paid vacations

Monday, January 20th, 2014

No rest for the weary

No rest for the weary

Last fall, the labor ministry inspected 5,111 companies they suspected might be burakku kigyo, or “black companies,” meaning enterprises that violate labor standards, usually with regard to working hours. The ministry found that more than 80 percent were, in fact, guilty of some kind of misdemeanor in their treatment of employees, with 44 percent violating overtime rules and 24 percent not paying extra wages for overtime work at all. All the major media reported the investigation but, as is always the case with such revelations, no companies were identified.

Tokyo Shimbun, however, did interpolate the findings in an interesting way by offering a useful tip to young job-seekers: A good criterion for determining whether or not a company treated its employees fairly was the way it handled paid vacations. As it stands, Japan, among all the major industrial economies in the world, has the lowest rate of workers taking paid vacations — on average only 47 percent of full-time regular employees.

In France, Germany and the U.K., almost 100 percent of full-time workers take paid leave, probably because it is legally mandated. In the U.S., where there is no law guaranteeing paid vacations, the rate is between 70 and 80 percent. The usual reason for Japan’s low showing in this regard is the structure of the workplace, where employees are expected to take full responsibility for their positions, meaning that when they take time off they have to ask other employees to cover their tasks, thus giving those employees extra work.

This can cause bad feelings among co-workers, which is why in Japan everybody takes vacations at the same time. In other countries, tasks tend to be shared within departments or sections, so if one person takes off his job can be covered by several people.

Nevertheless, Japan does have rules governing vacation time. After six months on the job, a new employee, whether full-time or part-time, must be allowed 10 days of paid vacation if he or she has worked at least 80 percent of all his employer’s business days during those six months. Then, for every subsequent year the employee remains at the company, he or she gains one extra paid day off. The labor ministry survey found that the average white collar worker takes 8.6 days of paid leave a year. In addition, a survey by Rengo, the Japan Trade Union Federation, found that 23 percent of workers took no vacation at all, while another 24 percent took up to only 2 days.

According to an article published last November by the weekly magazine Shukan Post, with pressure mounting from the government to increase salaries in line with the Liberal Democratic Party’s economic recovery plan, some companies are looking at paid vacations as a means of meeting these goals, by paying employees extra for the time they don’t take off.

At present, this is against the law. In 1955, the practice of “buying” paid vacations was outlawed because, according to a professor interviewed by Post, Japan was just entering its high-growth period and there were labor shortages, so businesses could afford to buy workers’ vacations since consumer demand was so high. The government realized that workers could easily be exploited.

The Post suggests the government legally allow companies to buy vacation time since workers themselves have said they are willing to sell such time if they receive “the proper compensation.” Companies now can legally compensate for unused vacation time when an employee quits or retires, so changing the law wouldn’t be that difficult.

In any event, the magazine reports that many companies already buy vacation time under the table, though they often pay only the equivalent of the minimum wage. The magazine figures that since a 45-year-old university graduate makes on average ¥18,500 a day, he could demand ¥185,000 extra for not taking his mandatory 10-day vacation. That extra money would add about ¥15,000 more to his monthly pay, which by itself isn’t going to boost his pay enough to provide the stimulus the government wants, but it’s something.

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