Japanese Business Lobby Calls For Hike In Consumption Tax

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

15 September 2004

Japan’s most influential business group has called upon the government to increase the rate of consumption tax in order avert a crisis that could see the country’s debt levels swell to over five times the size of the economy.

Reports earlier in the week revealed that Nippon Keidanren, the Japan Business Federation, prophesised the debt to GDP ratio will reach 478% by the year 2025 if tax revenues are not increased or public spending cut.

At 140% of GDP, Japan’s outstanding long-term and local government debt is already the highest in the industrialised world.

According to Keidanren’s calculations, the debt level will be kept more or less in check if consumption tax, currently levied at 5%, is gradually lifted to around 15% by fiscal 2013. In tandem with a 22% cut in spending, this would mean a debt to GDP ratio of 172% in twenty years time, according to the group.

Prime Minister Junichiro Koizumi has pledged to reform Japan’s fiscal finances by reining in spending. However, he has resolutely refused to countenance a hike in consumption tax whilst he is in office.

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