Japan To See Hike in Sales Tax Rate

June 9, 2011 Taxation in Japan

Naoto Kan, Prime Minister of JapanJapan will soon see an increase in the national sales tax rate, as a widespread consensus is reached on the immediate need for greater national tax revenues in order to address the government’s debt levels and restore international confidence in the country’s economic future.

On June 8th a new government panel headed by Prime Minister Naoto Kan held its first meeting to discuss potential fiscal reforms for Japan, with particular attention on the possibility of increases to the national sales tax rate. The panel is expected to produce rapid results, with a plan for tax system and social security reforms scheduled to be released by June 20th.

The International Monetary Fund (IMF) has also stepped forward to comment on the issue of Japan’s sales tax rate, saying that policymakers should consider tripling the currently instated tax rate. In its annual review of the Japanese economy, the IMF suggested that the sales tax rate be gradually increased, starting with a 2 percent increase next year, and eventually rising to as high as 15 percent.

Sales tax increases have been a controversial subject in Japan throughout the last two years, with the country’s major opposition party, the Liberal Democratic Party, standing strongly against any increases proposed by Naoto Kan. However, after the first meeting of the new discussion panel, Finance Minister Yoshihiko Noda said that all involved parties displayed a willingness to proceed with a tax increase, but further talks will need to be held to agree on the timing of the rate hike.

Photo by World Economic Forum