Japan's Finance Minister In Favour Of Sales Tax Increase

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

26 August 2003

In a weekend speech, Japanese Finance Minister Masajuro Shiokawa said that Japan would have to raise its existing 5% sales tax as early as 2006, given current fiscal trends.

"We cannot help raising (the tax rate) in fiscal 2006 or thereafter," Shiokawa told reporters in the western Japan city of Kobe after attending a tax symposium, adding controversially: "Although the prime minister has said he will not raise the tax while in office, I have my own opinion about the subject."

Prime Minister Koizumi will presumably stay in office until late 2006 if he is re-elected as leader of the ruling Liberal Democratic Party (LDP) in party elections to be held on 20th September.

The governmental tax panel, which has the task of making recommendations for tax policy in the medium to long term, recently suggested that a substantial rise in consumption tax to at least 10% is necessary in order to help alleviate the burden on the tax system of an increasingly ageing population.

Government figures reveal the extent of the problem, with recent estimates suggesting that the cost of the social security system will balloon from 82 trillion yen in 2002 to 176 trillion yen in 2025. Moreover, the country's debt level, which currently stands at 700 trillion yen ($5.9 trillion) will soon grow to 1 quadrillion yen.

According to the head of the tax panel, Hiromitsu Ishi, Japan finds itself "at a crossroads" in terms of taxation policy, and must face the choice of adopting a more European model of high tax and spend, or the American model of less state interference in the provision of services in order to reduce expenditure. Ishi stated a preference for the former, and recommended an increase in the national tax burden from the current level of 36% to nearer 50%, as seen in many European nations.

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