Japan’s Tax Panel Urges Government To Phase Out Tax Cut

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

19 November 2004

The head of Japan’s governmental tax panel, Hiromitsu Ishi is urging Prime Minister Junichiro Koizumi’s administration to forge ahead with plans to scrap an earlier tax cut so that the country can meet its goal of achieving fiscal reform.

Addressing a news conference yesterday, Ishi argued that the government must seek to end the tax cut, passed under the previous Prime Minster Keizo Obuchi, by the fiscal year 2006/2007.

Ishi added that the government should begin to phase out the tax cut, which is worth some US$31.7 billion per year, gradually from 2005/2006.

For some, this remains an uncomfortably tight timeframe within which to restore taxation to levels last seen five years ago, especially given the fragility of the Japanese economy.

Nonetheless, Ishi expressed confidence that Japan will be able to absorb the impact of a tax hike, stating: “I believe a two-year plan is sufficient consideration for effects on the economy.”

The government’s haste to phase out the tax cut has attracted criticism from the business lobby, which fears an increase in tax will stymie consumer demand and stall Japan’s economic recovery.

“Fiscal restructuring is important, but it might be worth waiting another year or two,” the chairman of the Japan Chamber of Industry and commerce, Nobuo Yamaguchi told Finance Ministry officials, according to Reuters.

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