午夜剧场

Are you familiar with the concept of "implicit tax"? With the consumption tax scheduled to rise to 10% starting October 1, 2019, a phenomenon known as "last-minute demand" invariably occurs during tax hikes. Since consumers are forced to bear an additional tax burden if their purchase is delayed by even a single day, this behavior itself seems rational. In particular, for high-ticket items like houses and cars, the impact of the tax increase is greater, so the last-minute demand will likely be more significant.

Now, consider the backlash of last-minute demand after the tax increase. What would a retailer facing a drop in customers think? They would likely try to sell their products even if it means lowering the price. In other words, buying items before a tax hike does not necessarily mean you are purchasing them at the lowest possible price. This change in pre-tax prices before and after a tax increase is brought about precisely by the consumption tax hike, and this is what we call an "implicit tax." Simply put, an implicit tax arises when "pre-tax prices, which are not directly related to taxes, are distorted by the existence of taxes." The important point in this example is that while consumers react strongly to the "visible" price change of a tax hike, they show little interest in changes to the pre-tax price.

There is an interesting study from abroad. In the United States, retail sales taxes are introduced at the state level. When researchers investigated whether consumer behavior differed depending on whether supermarket prices were displayed as tax-inclusive or tax-exclusive, they found that sales of products with tax-inclusive price displays were, on average, about 8% lower than those with tax-exclusive displays. This 8% is roughly equivalent to the retail tax rate. In other words, consumers exhibited irrational behavior by focusing on the price tag (displayed price), even though they knew the tax would be added at the register.

Currently in Japan, while the general rule for transaction prices of taxable businesses is to display tax-inclusive prices, tax-exclusive displays are also permitted as a special exception. In fact, many retailers have adopted tax-exclusive displays. Since the consumption tax rose to 8%, haven't you had the experience of realizing at the checkout counter, "Did I really buy that much?" Retailers likely understand empirically that tax-inclusive versus tax-exclusive price displays affect sales, which is why they actively choose to display tax-exclusive prices.

After the tax increase in October, I recommend carefully observing whether the price on the tag is tax-inclusive or tax-exclusive when you shop.