Fitch Warns Japan of Possible Downgrade Following Tax Delay

June 14, 2016 Taxation in Japan

Consumer spending in JapanTOKYO – Japan’s decision to delay its hike to the rate of sales taxes could lead to a downgrade in its credit rating.

On June 13th the international ratings agency Fitch Ratings announced that it has decreased its outlook for the sovereign debt of Japan, due to the government’s decision to delay the implementation of a hike to sales taxes.

It was stated that the planned hike to the rate of sales tax was a fundamental element of the country’s fiscal consolidation plan, and its delay now puts the government commitment to the consolidation into doubt.

While the government of Japan claimed that it would take steps to shore up the tax revenues lost due to the delay of the tax hike, it gave no indication of what the measures may be or when they would be implemented.

Fitch has not yet downgrade the rating of the government bonds, but has revised the outlook of the country to Negative, saying that it would need to see renewed commitment by the government to fiscal consolidation in order avoid downgrading the rating in the foreseeable future.

Japan was scheduled to raise the rate of sales tax from 8 percent to 10 percent in 2017, but earlier this month the hike was delayed to at least 2019.

Photo by: Holly Golabek