Japanese PM Continues To Prepare Ground For Consumption Tax Hike

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

20 January 2009

Japanese Prime Minister Taro Aso has this week reiterated his intention to try to raise the rate of Japan's consumption tax by 2011.

The Prime Minister first announced that he planned to raise the tax in October of last year from the current rate of 5%, to around 10%.

The move would be made as part of a wider reform of the Japanese taxation system, and would also encompass higher income taxes for the wealthy, and a widening of the corporate tax base accompanied by a cut in the rate, which, at 40%, is one of the highest in the world.

Such plans have drawn criticism from some members of the governing coalition, who are wary of how tax increases will be received by voters.

However, despite concerns, Mr Aso has again confirmed his intention to raise the tax, stating that the increases could be put in place as soon as 2011, the year in which the government has predicted that the current financial strains on the economy will begin to lift.

Advocates of an increase in consumption tax argue that Japan has little choice but to raise more in tax revenue given the growing social security burden as the population ages. Critics of the idea however, argue that increasing the price of goods and services through higher taxes is hardly going to be the tonic that the Japanese economy needs to lift itself out of long-term stagnation.

It is expected that Mr Aso will formally address the issue during an upcoming policy speech.

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