Japan Sets Schedule For Consumption Tax Hike

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

20 January 2011

Members of the Japanese government have confirmed a schedule to legislate tax reform proposals, including an increase in consumption tax, by March 2012.

Consideration of an increase in Japan’s 5% consumption tax rate had previously been shelved, after a proposal to double it to 10% became a major cause of the government’s unpopularity and electoral defeat in July last year. It is therefore expected that any suggested increase would still face considerable opposition within Prime Minister Naoto Kan’s Democratic Party of Japan, as well as from the opposition parties.

However, in his New Year’s message, Kan promised a plan for Japan’s consumption tax by the middle of 2011, as part of a debate he hopes to begin linking the tax hike to the financial resources needed to pay for the country’s social security programmes. He said that it is now imperative to discuss an increase to the tax, and linked it directly to provide funding for the rapidly-rising costs of pensions and health care.

Japan's Finance Minister Yoshihiko Noda has now disclosed that the government will be looking to pass its tax reforms within the next fiscal year, using a provision in the 2009 fiscal reform law that stipulates that a proposal should be presented to parliament by the end of the 2011-12 fiscal year, that is, by end-March 2012.

That promise was then also repeated by the Deputy Chief Cabinet Secretary Hirohisa Fujii, a former Finance Minister, who also looked forward to an all-party agreement on the structure of tax reforms by that date.

Following his recent appointment as Economic and Fiscal Policy Minister, Kaoru Yosano confirmed that he fully expects all sides to agree on an increase to consumption tax if it is proposed to fund increasing social welfare costs, rather than as merely a means of reducing the fiscal deficit.

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