(c) 2013, The Yomiuri Shimbun.

(c) 2013, The Yomiuri Shimbun.

TOKYO The Liberal Democratic Party and New Komeito finalized Thursday afternoon an outline for tax changes in fiscal 2014 which calls for a lower consumption tax rate system for daily necessities and other items to be introduced when the consumption tax is 10 percent.

During a meeting of the ruling parties' tax system panel early Thursday, the LDP and its junior coalition partner Komeito agreed that a reduced tax rate system "will be introduced at a time when the consumption tax rate is 10 percent, after the necessary financial resources are secured and understanding from the public, including relevant businesses, is obtained."

The two parties will discuss details of the reduced tax rate system, including the selection of items to be subject to it and the development of a separate accounting system, and reach a conclusion on those issues by December next year. The LDP and Komeito will then finalize an outline of tax system revisions for fiscal 2015.

A senior Komeito official also said the ruling parties will release an interim report on the planned reduced tax rate system in summer after discussing it in detail at the tax system panel.

Komeito has insisted that a reduced tax system be applied to such items as food and newspapers when the consumption tax rate is raised from 8 percent to 10 percent in October 2015.

The LDP finally agreed to incorporate into the outline of tax system revisions for fiscal 2014 the introduction of a reduced tax rate system because the wording "at a time when the consumption tax rate is 10 percent" could be interpreted as either when the consumption tax rate is raised, or sometime after. The LDP has been cautious about introducing such a system at the same time the tax is raised out of concern that tax revenues will significantly drop as a result.

Several preconditions for the introduction of the reduced tax rate system were also incorporated into the outline.

Although the LDP and Komeito reached an agreement on the use of a reduced tax rate system, they still need to settle a possible conflict over the specific timing of its introduction.

"The direction of the introduction [of a reduced tax rate system] is now clear, and it is also clear that we will design the system in detail before finalizing the outline of tax system revisions for fiscal 2015 next year," Tetsuo Saito, chairman of Komeito's Tax Research Council, told reporters Thursday morning. "We made one step forward."

"There remains one challenge to obtain understanding from the public and reach a consensus [on the introduction of the system]," said Takeshi Noda, chairman of the LDP's Tax System Research Commission.

The meeting of the ruling parties' tax system panel lasted for more than six hours from Wednesday night to early Thursday with the LDP and Komeito having difficulties narrowing differences in their views.

In particular, the LDP raised such questions as how to compensate for a decline in tax revenues due to the introduction of the system.

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