Japan has introduced a system of cash-back rewards points in response to increasing the consumption tax from 8 percent to 10 percent.
The new system — which rebates the tax increase in some stores when paying with a card rather than cash — will run until June 2020. The aim is to prevent a recession like the one that happened in Japan after the tax was increased from 5 percent to 8 percent in 2014. The government has promised to spend half of the extra revenue on Social Security and free childcare, as well as reducing the budget deficit.
Retailers must sign up to participate, with different payment companies implementing the system in various ways. While there were some system problems reported on Tuesday (Oct. 1), most debit and credit card providers have chosen a system that simply gives the rewards as an automatic rebate on the bill. For example, smaller retailers are able to "give a 5 percent rebate, making their goods cheaper than before the tax" boost. Franchises, including convenience stores, can give 2 percent, but large retailers and supermarkets cannot participate in the program.
“If you just look at the consumption tax in isolation, then it certainly has a negative effect on the economy,” said Akio Mimura, chairman of the Japan Chamber of Commerce, according to the Financial Times. However, he pointed out that "another aspect is the public’s sense of security at a time when there are inadequate resources for Social Security.”
The government has also introduced a split-rate consumption tax, with food staying at an 8 percent rate, while other goods went up to 10 percent. The Bank of Japan believes that because of these proactive measures, the economic impact of the consumption tax rise will be “marginal” compared with 2014.