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Japan Needs Bolder Fiscal Reforms, Says IMF

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

24 July 2015


The International Monetary Fund has called on Japan to take more ambitious measures to put debt on a downward trajectory.

The IMF said the recent decline in the fiscal deficit – achieved through containment of spending and higher consumption tax revenue – will temporarily stabilize the ratio of debt to gross domestic product (GDP) at about 250 percent – the world's highest – before this debt begins to grow again under current policies.

The IMF has therefore said that Japan needs to do more to begin to reduce its gargantuan debt. It said Japan needs to substantially change its tax and spending policies to enable it to achieve a fiscal adjustment worth 4.5 percent of gross domestic product, namely by increasing the consumption tax rate beyond 10 percent.

Japan plans to raise the consumption tax rate from eight percent to 10 percent from April 2017, after previously deferring a hike that was to take place from October 1, 2015. The IMF has underscored that Japan should retain a single rate structure and increase the rate gradually in an attempt to keep consumer consumption broadly unchanged.

TAGS: tax | economics | value added tax (VAT) | fiscal policy | revenue guidance | International Monetary Fund (IMF) | tax rates | tax reform | Japan

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