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Japan Pulls Sales Tax Hike Plans As Economy Sputters

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

19 November 2014


Japan's Prime Minister, Shinzo Abe, has responded to statistics showing that Japan has remained in recession for a second quarter with an announcement that a scheduled consumption tax hike will be deferred.

Abe said that, based on discussions with his advisors, "I have decided not to raise the consumption tax to ten percent next October, and I have decided to delay a consumption tax hike for 18 months."

Earlier, it had been expected a decision would not come until December. The surprise early announcement from Abe, alongside confirmation of a snap election, will push forward the hike to April 2017.

Prior to the release of the new data on November 17, 2014, most of Abe's advisers were said to support an October 2015 hike, while a handful of others had urged shelving the hike until 2017 to allow wages to rise.

Japan entered a deeper than expected recession (of 7.1 percent of gross domestic product) during the second quarter, after the first sales tax hike in more than a decade in April to eight percent from five percent.

The Government had shrugged off the news, confident the economy would bounce back, but the economy continued to shrink, by 1.6 percent of GDP, in the third quarter, the figures show.

Earlier, it was said that the Government was prepared to introduce sufficient fiscal stimulus to prop up the economy after the second hike, but there had also been increasing talk lately of the need to cushion the hike with the introduction of a second, lower rate of consumption tax.

TAGS: VAT rates | tax | value added tax (VAT) | sales tax | Japan

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