Japan Considering Sales Tax Hike

June 21, 2010 Taxation in Japan

Watermark on Japanese 10,000 Yen Note, Macro PhotoThe Japanese Government is considering doubling the national Sales Tax rate, in order to curb the national public debt while retaining current levels of public services.

Late last week Japanese Prime Minister Naoto Kan declared the need for the Japanese Government to carryout comprehensive reforms to the nation’s tax system and drastic cuts to public spending, and called opposition parliamentary members to join in supporting his proposal. Naoto Kan also revealed that he is willing to consider doubling the current 5 percent national Sales Tax.

The Prime Minister revealed that an exact tax rate will be finalized by March 2011, and for the purposes of initial investigations, the 10 percent rate will be used as a “reference point”. While announcing his intention to reform national tax rates, the Prime Minister also conceded to investigating a reduced Sales Tax rate on food and other necessities.

According to Yoshiyasu Ono, Professor at the Osaka University and a adviser to Naoto Kan, the Japanese Government needs to “sustainably” raise taxes as soon as possible. Yoshiyasu Ono also said that the Government should consider increasing the rates levied across numerous other taxes in order to lower the current level of public debt, which has currently reached 200 percent of GDP.

According to Japanese political analysts, the issue of increased Sales Taxes is a volatile idea in Japan. Public opinion surveys released on June 21st indicate that support for the Prime Minister has dropped by approximately 9 percent, to below 50 percent. Approximately 39 percent of those surveyed said that they support the idea of the Sales Tax rate increasing to 10 percent.

Within the the Japanese parliament there are opposing views regarding a Sales Tax rate increase. Sadakazu Tanigaki, leader of the Liberal Democratic Party and Minister of Finance of Japan, claimed that all of the nation’s political parties need to understand that it is time to increase the Sales Tax rate. Although, Shizuka Kamei, President of the People’s New Party, warned that the any tax increases need to be timed carefully, as they have a potential to cripple an economic recovery.

Photo by Ivan Walsh