Japanese Government Will Not Hike Consumption Tax Says PM

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

30 May 2003

Reacting to recent speculation that the government Tax Commission will recommend a hike in consumption tax to European levels when it publishes its interim report next month, Prime Minster Junichiro Koizumi has flatly denied that he has any intention of raising sales tax.

"Consumer spending will help economic recovery, and that's why I refuse to raise the consumption tax," the Prime Minister told the budget committee of the upper house of parliament recently, adding: "To think about raising the tax is a task for people who take my place after I resign."

According to Bloomberg, Japan needs to raise some 2.7 trillion yen ($23 billion) in extra revenue annually to pay for an increasingly burdensome pension system, as the country begins to suffer the consequences of an ageing population. A 1% rise in consumption tax would raise the government an additional 2.5 trillion yen per year, the news service revealed.

Illustrating the Japanese dilemma, statistics released this week by the health ministry showed that over 7 million people are now over the age of 65, accounting for nearly one-sixth of all households. Consequently, it is claimed, there will soon be only two taxpayers to contribute to each senior citizen's pension and healthcare costs.

Speaking at a press conference earlier this week, Finance Minister Masajuro Shiowkawa said that the government's first priority must be controlling spending, before any consideration is given to increases in taxation. However, as the faltering economy continues to depress tax revenue, the government is also planning a record debt issue of 48.1 trillion yen ($405 billion) for the tax year that commenced this April.

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