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Japanese Sales Tax Delay Bad For Credit Rating: Fitch

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

14 June 2016


Fitch Ratings confirmed Japan's long-term "A" credit rating on June 13, but revised its outlook to negative, largely due to Prime Minister Shinzo Abe's recent decision to postpone an increase in the consumption tax rate due to take effect in April next year.

Japan's eight percent consumption tax rate was originally programmed to increase to 10 percent in October 2015, but it will now not take place until October 2019 at the earliest. Abe has also indicated that the Government will introduce additional fiscal stimulus measures later this year to counteract continuing economic uncertainties.

In a press release, the rating agency confirmed that the outlook revision followed the delay to the tax hike being made without "identifying any specific offsetting measures, … [and] primarily reflects Fitch's decreased confidence in the Japanese authorities' commitment to fiscal consolidation."

"The consumption tax increase was an important element in the government's fiscal consolidation strategy, which aims to bring the primary deficit of the general account of the central and local governments into balance by the fiscal year from April 2020 to March 2021 (FY20), against a 3.3 percent deficit in FY15," Fitch added.

The agency noted that it "had expected the increase in the consumption tax rate to yield about 0.8 percent of gross domestic product for deficit reduction. When announcing the delay, the Government said it remains committed to its target of primary balance by FY20, although it did not set out any further specific measures to achieve this goal."

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

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