Why Is the Consumption Tax Called a “Bad Tax”? — An Easy-to-Understand Explanation of Its Mechanisms and Unfairness

Why Is the Consumption Tax Called a “Bad Tax”? — An Easy-to-Understand Explanation

The consumption tax is a familiar tax paid every time we purchase goods or use services. However, there is persistent criticism that the consumption tax is a “bad tax.” Why is this tax viewed so negatively? Here is a clear explanation for those who are not familiar with tax systems.

1. Regressivity — Heavier Burden on Low-Income Earners

The consumption tax applies the same rate (currently 10%) to everyone.

While this seems “fair” at first glance, in reality, the lower your income, the higher the proportion of your living expenses that goes to consumption tax, making the burden heavier. This characteristic is called “regressivity.”

“Consumption tax is a tax that burdens consumers and ordinary people through prices. Therefore, it is a highly regressive tax and not suitable for welfare purposes.”

2. System Favors Large Corporations — Tax Refunds

There is a system called “tax refunds” (export tax refunds) in the consumption tax, where large exporting corporations actually receive large sums of money back instead of paying consumption tax.

For example, major companies like Toyota reportedly receive over one trillion yen in tax refunds annually.

“The consumption tax is a bad tax, and the most unfair aspect is the tax refund system for large exporters. While tax increases mean higher payments from small businesses, large exporters pay no consumption tax to the tax office and only see their tax refunds increase.”

3. Heavy Burden on Small and Unprofitable Businesses

The consumption tax is imposed even on small businesses and companies that are not making a profit. Even if a business is in the red, it still has to pay the tax, putting extra pressure on management.

“The consumption tax forcibly collects taxes even from companies in the red.”

4. Introduced Alongside Corporate and Income Tax Cuts

When the consumption tax was introduced, the highest rates for corporate and income taxes were lowered. As a result, the tax burden on large corporations and high-income earners decreased, while the burden on ordinary people and small businesses increased.

5. “For Social Security” Is Often Just a Pretext

Although it is often said that “the consumption tax is for social security,” in reality, much of the revenue is used to compensate for reduced taxes on large corporations and to fill gaps in the national budget.

“The consumption tax goes against the principle of ability-to-pay, is regressive, and is a thoroughly pro-big business tax system.”

Because of these fundamental unfairness issues—regressivity, advantages for large corporations, and the heavy burden on small businesses and low-income earners—the consumption tax is called a “bad tax.” Understanding how taxes work can be the first step toward thinking about a better society.