Japan debate on reduced Consumption Tax rate

Mon 7th Sep 2015

In the lead-up to the second raise in Japanese Consumption Tax (CT), from 8% to 10% in April 2017, debate is raging as to the value of introducing a reduced CT on essentials.

The proposal is for a reduced, 2%-5% rate, designed to help the low-income householders in the country, and offset some of the regressive features of CT. Alternatively, the government many introduce direct cash refunds to taxpayers based on a formula of forecast household spend on basic foodstuffs.

Japan raised Consumption Tax to 8% in April 2014. This was part of the two-stage plan, the second rise to 10% was scheduled for October 2015. However, the initial rise pushed up inflation and choked off a nascent retail sector recovery. Japan slipped bank into recession after the rise.

The doubling of Japanese Consumption Tax was drawn up to pay for the rapidly expanding social welfare costs of Japan’s ageing population.