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Japan Tax Panel To Recommend Consumption Tax Hike

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

16 November 2007


The Japanese ruling party's tax policy panel will reportedly recommend an increase in Japan's consumption tax by 5 percentage points over the next eight years - a proposal likely to spark another heated debate on this politically sensitive issue.

According to a report from Nikkei Net Interactive, which did not cite sources, the Liberal Democrat Party's fiscal policy group has decided that the consumption tax should be raised gradually from its current level of 5% to 10% by 2015, to help ease Japan's growing welfare burden.

It is believed that the tax panel will include the sales tax hike and other proposals in an interim report due for release on Tuesday.

However, the Liberal Democrats are split on the issue, and the party's secretary-general, Bunmei Ibuki, said in a speech on Wednesday that the government has no intention of raising consumption tax in the fiscal year which begins in April 2008.

Facing a demographic timebomb, tax reform has taken centre stage in Japanese political debate in recent years, although the ruling coalition has been unable to agree on the best fiscal strategy needed to raise money for social spending, given the country's high level of debt.

The ruling LDP seemed to be slowly coming to the conclusion that a small rise in consumption tax, while unpopular, would provide a substantial amount of the revenues needed to meet growing spending requirements without hiking taxes in incomes. However, a devastating defeat in elections to the upper house earlier in the year has clipped their wings on tax and spend decisions somewhat, and the debate is likely to rumble on for the foreseeable future.


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