Avoid having consumers mistake tax-inclusive labels for price hikes

Including consumption tax in the prices displayed for products and services will be mandatory from April 1.

The aim is to present the amount to be paid in an easy-to-understand manner, but there are concerns that such labeling will be misinterpreted as price hikes and lead customers to refrain from making purchases. Retailers should make efforts to inform people that the displayed prices are tax-inclusive, while consumers should endeavor to remain calm in their response to the situation.

Tax-inclusive labeling originally became mandatory in 2004, but since autumn 2013, just before the consumption tax rate was raised from 5% to 8%, labels that exclude tax — for example, a “¥100 plus tax” label — have been permitted as a special measure.

This was done to avoid price tags having to be replaced yet again, as the consumption tax rate was scheduled at the time to be raised to 10% in October 2015. The special measure will expire at the end of this month.

It is essential for companies that change the labeling of their products and services to carefully explain this at stores and on the internet to avoid any confusion.

During the time when the special measure was allowed, firms were divided on whether to adopt it. As of February this year, prices of about 26% of food products and about 32% of services had labels that excluded tax.

Even before it became mandatory to display tax-included prices, some retailers and other industries had been reluctant to do so, saying that would give consumers the impression that prices went up. According to a survey conducted by a supermarket industry organization in 2004, nearly 60% of firms said that their sales declined.

Despite changes in labeling, the amount consumers ultimately pay when shopping does not change. About 90% of consumers prefer tax-inclusive price displays, according to a government survey conducted in February. Priority should be given to improving the convenience for consumers by making the total amount clearly visible.

After it becomes mandatory to display the tax-included price, sellers can still display the price without tax as well. However, it is a violation of the law against unjustifiable premiums and misleading representations if the price including tax is displayed in significantly smaller print than the price excluding tax. Such cases can be subject to penalties, such as a fine or the disclosure of the name of a store.

To prevent a negative impact on consumption, the government must make the public thoroughly understand the purpose of tax-included price displays and the details of the system.

Consumers, for their part, should carefully check the price of products before buying them.

In response to tax-inclusive labeling becoming mandatory, more companies may decide to reduce the price of their products because they fear losing some customers. In 2004, there were a number of cases in which major retailers cut prices and asked their suppliers to bear the burden, which can be viewed as harassing subcontractors.

To prevent a similar situation from occurring, the Fair Trade Commission should step up its monitoring and crack down on unscrupulous acts in which large firms take advantage of their dominant position.

— The original Japanese article appeared in The Yomiuri Shimbun on March 17, 2021.