Japanese Prime Minister Mulls Sales Tax Hike

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

24 March 2006

Japanese Prime Minister Junichiro Koizumi has hinted at a change in position on the controversial sales tax issue, saying this week that an increase in the levy should be considered as part of a wider debate on the nation's tax system and how it will fund its future social security provision.

In the past, Koizumi has steadfastly refused to countenance an increase in the 5% consumption tax, and has made it clear that he would not be prepared to preside over an increase in the tax whilst he remains in office. Koizumi's current term is due to come to an end in September.

However, the Prime Minister has conceded in parliament that "a lot of people" may have to share the tax burden in future, and that changes to consumption tax should not be ruled out.

"I want to deepen discussions on the entire tax system, including the consumption tax, income tax, corporate tax and property tax," Koizumi stated.

Earlier in the month, the Organisation of Economic Cooperation and Development suggested that Japan should increase consumption tax to help tackle the challenges of an ageing society whilst servicing Japan's public debt, which at 150 percent of GDP is the highest in the developed world.

"Japan enjoys the lowest VAT rate in the OECD," observed the organisation's Secretary General Donald Johnston at a news conference in Tokyo.

"There is going to be scope for Japan to get more revenues from the VAT tax," he added.

Jeffrey Owens, director for the OECD centre for tax policy and administration, said given the level of public debt in Japan, the consumption tax should be raised to around 8%.

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