Japan May Reduce Previous Tax Cut By Half In 2005

by Mary Swire, Tax-News.com, Hong Kong

08 December 2004

Reports have suggested that Japan’s ruling Liberal Democratic Party is considering paring back a previous tax cut by up to 50% beginning in 2005 as the government attempts to increase revenues.

According to Kyodo News, sources close to the government have revealed that 30% to 50% of the tax cut legislated in 1999 under a previous administration will be clawed back in the fiscal year commencing in April 2005.

It is thought that the rest of the tax cut may be dissolved by the following year, although the extent of this effective tax hike is likely to be dictated by Japan’s economic circumstances at the time.

The tax cut was originally passed in an attempt to end the country’s long-standing economic stagnation. However, critics of the proposal to have it reversed as part of longer term plans to address fiscal debt and escalating social costs accuse the government of acting hastily and threatening Japan’s fragile economic recovery.

The ruling coalition plans to decide by how much to reduce the tax cut in 2005 after studying revised GDP data for the three months to the end of September, and after examining movements in the exchange rate between the yen and the US dollar. The yen is currently standing at a five year high against the US currency.

Recommended