OECD Lauds Japanese VAT Hike Decision

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

07 October 2013

The Secretary General of the Organization for Economic Cooperation and Development Angel Gurria has warmly welcomed the announcement from Japanese Prime Minister Shinzo Abe that the nation will raise its consumption tax from its current five percent levy to eight percent from April 2014.

Gurria said: "With public debt now at around 230 percent of gross domestic product (GDP) and a comparatively low tax burden on consumption, the tax hike is crucial to assure the world that Japan will strengthen its public finances."

"As Abe himself has noted, this increase is essential to maintain confidence in Japan and establish a social security system that is sustainable for future generations. I congratulate Prime Minister Abe for this important step and also encourage the government to complete the second hike in the consumption tax rate to 10 percent in 2015."

The OECD highlighted that the tax hike is the first of many steps that are needed to achieve Japan's target of primary budget surplus by 2020. It encouraged Japan to continue to develop detailed and credible fiscal consolidation plans to further strengthen confidence in Japan's public finance. "Rapid population aging makes the need even more pressing: Japan's population, already the oldest among OECD member countries, is projected to remain the oldest through 2050, putting upward pressure on public social spending," it concluded.

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