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OECD Urges Japan To Raise Taxes

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

08 April 2008

The OECD has identified tax reform as an "urgent priority" for the Japanese government, arguing that substantial new revenues must be raised to tackle a mountainous public debt which has grown to alarming levels.

"With gross debt of 180% of GDP, further measures to reduce the large budget deficit are increasingly urgent," the OECD noted in its 2008 Economic Survey of Japan.

According to the report, Japan needs as much as 5% to 6% of GDP in additional government revenue just to stabilise this public debt.

It also recommended that tax reform should promote economic growth, address the deterioration in income distribution and improve the local tax system.

The OECD suggested that additional revenue should be obtained primarily by increasing the consumption tax - a hotly contentious issue in Japan, despite the fact that the rate is currently the lowest in the OECD area. A broadening of the personal and corporate income tax bases would also help boost tax revenues, it argued.

However, Japan's corporate tax rate, now the highest in the OECD, should be cut to promote growth, while aspects of the tax system which discourage labour supply and distort the allocation of capital should be eliminated, the report stated.

In addition, it recommended that Japan should consider introducing an Earned Income Tax Credit to promote equity, and bring about simplification of the local tax system, increasing reliance on existing taxes on property, income and consumption.

Further information on the OECD's 2008 Economic Survey of Japan can be found in the Tax-News Resources section.

 

 






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