Japan Looking to Tax Hike for Post-Quake Rescue

April 20, 2011 Taxation in Japan

Naoto KanThe government of Japan is considering raising sales taxes by 3 percent, in order to raise funds for the country’s recovery efforts, and to avoid any substantial increases to the level of government debt.

In the wake of the series of disasters to have hit Japan in recent months, the government is seeking new streams of revenue to plug budgetary gaps arising from the expense of rebuilding the country. The Cabinet Office has already estimated that the damages will total approximately JPY 25 trillion.

The government is currently examining different means of raising revenues, in order to fund an initial emergency budget later this month. Provisional estimates indicate that an extra JPY 4 trillion will need to be raised by the government, in order to cover the first stages in the recovery program. Local analysts expect that Japan will initially rely on bond issuance to raise the necessary funds, but will attempt to raise greater revenues through tax measures. While speaking at a news conference in Tokyo on April 19th the Chief Cabinet Secretary of Japan Yukio Edano indicated that the government is currently considering instating a hike to the national sales tax rate, in order to raise revenues.

Sales tax rates have been a highly debated and controversial issue in Japan in recent months, with Prime Minister Naoto Kan pushing for an increase, despite widely held opposition from other political parties and the public. However a new poll by the Nikkei Business Daily shows that almost 70 percent of Japanese taxpayers would now support an increase to the sales tax. The Cabinet Chief hinted that if a rate rise were to be carried out, it would take the form of a 3 percent hike, which would last for 3 years. It is estimated that such a tax rate increase could raise up to JPY 22 trillion over the coming three years, covering the majority of costs arising for the rebuild of the national economy and social infrastructure.

Photo by World Economic Forum