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Japanese Government Rules Out Consumption Tax Hike

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

20 December 2005


Japan's ruling Liberal Democrat Party (LDP) has ruled out an increase in the 5% consumption tax in the fiscal year which begins in 2007 as part of plans to tackle Japan's ageing society and rising public debt.

In a television interview broadcast at the weekend, Hidenao Nakagawa, the LDP policy chief stated that it would be "impossible" to implement an increase in consumption tax during the 2007 fiscal year.

Raising the country's consumption tax rate to between 10% and 15% is an idea that has been endorsed by the government's tax advisory panel on numerous occasions. However, the move would be a politically sensitive one, and Prime Minister Junichiro Koizumi has stated that he will not increase the tax whilst in power - although his time as head of the ruling Liberal Democratic Party is set to come to an end next September.

Instead, the ruling coalition recommended last Thursday the scrapping of income, residential and corporate tax breaks and raising liquor and tobacco levies beginning in 2006 in a bid to raise 2 trillion yen (US$17 billion). Ultimately, the tax reform proposals call for "a complete overhaul of the tax system," with an increase in consumption tax to be discussed for 2008.


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