Japanese Businesses Call For Sales Tax Hike

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

14 January 2011

Following Prime Minister Naoto Kan’s call for a nationwide debate over an increase to Japan’s consumption tax, the Japan Association of Corporate Executives (Keizai Doyukai), has said that the tax should be increased from its present rate of 5% to 17% within the next six years.

Consideration of an increase to Japanese 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. Mention of the consumption tax was also absent from the government’s more recent tax and budget proposals for 2011, and its increase would face considerable opposition in Kan’s Democratic Party of Japan and the opposition parties.

In his New Year’s message, Kan had promised a plan for Japan’s consumption tax by the middle of 2011, as part of a debate he hopes to begin over 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.

In its initial contribution to such a debate, Keizai Doyukai’s chairman, Masamitsu Sakurai, criticized what he perceived as the government’s lack of a longer-term vision to counteract increasing social security costs and public sector debt. In the association’s opinion, Japan’s tax revenues are too reliant on direct individual and corporate income taxes and need to be more balanced towards indirect taxes, such as the consumption tax.

Keizai Doyukai called for the latter to be raised in stages to 17% by 2017. It suggested a rate of 10% by 2013, 15% by 2015 and 17% by 2017, to provide the financial resources for the country’s expected pension benefits to an ageing population. The association also looked for the government to achieve a primary budget surplus as soon as possible after 2015.

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