Japan Must Double Consumption Tax, Says Head Of Government Panel

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

20 January 2003

Speaking to the Bloomberg news service last week, head of the Japanese Tax Commission, Hiromitsu Ishi warned that the country's consumption taxes may have to be doubled in order to support the government's plans to increase its contribution to the pension system.

'We need to discuss increasing the tax to 7% or 8% targeting fiscal 2005, aiming to eventually raise it to 10%,' he told Bloomberg, echoing recent comments made by Finance Minister, Masajuro Shiokawa, Chief Cabinet Secretary, Yasuo Fukuda, and Economic and Fiscal Policy Minister, Heizo Takenaka, all of whom believe that consumption tax increases should be discussed.

Prime Minister, Junichiro Koizumi is opposed to such proposals, arguing that a sales tax increase could sap consumer demand, and has put foward government spending cuts as the solution to the country's economic woes.

'I don't mind there being debate about the consumption tax, but I won't raise it during my tenure,' he observed recently.

However, many economists believe that the Japanese Prime Minister may have no choice in the matter.

'Considering the ageing population and the mounting burden to finance the pension system, raising the consumption tax is inevitable,' Mamoru Yamazaki, Chief Economist at Barclays Capital Japan explained to Bloomberg last week. 'As long as the increase is aimed at financing the pension plan, it will be accepted by the public.'

Recommended