Japan to go ahead with 2nd Consumption Tax hike to 10% in 2015

Mon 22nd Sep 2014

The Japanese Finance Minister has confirmed that Japan will still go ahead with a second planned Consumption Tax rise in 2015 despite poor GDP growth figures.

The Consumption Tax rate rose from 5% to 8% in April 2014 as part of a plan to boost government revenues in the face of an aging population rising social spending and to bring down the stock of sovereign debt – the highest in the world.  This was part of a two-staged rise, the second rise to 10% is scheduled for October 2015.

However, whilst this year’s rise to 8% did produce a surge of consumer spending in the quarter before April, since then states of the European Union to continue to raise EU VAT rates across the region to respond to globalization. It coincides with the UK’s Institute’s warning last week that the UK may have to raise VAT from 20% to 25%. Japanese growth has slipped to back to near 0 levels.  This has prompted many commentators to call for a pause on the consumption tax rise.

The rise on the tax is a crucial part of Premier’s Abe’s three pronged plan to shake Japan from its long term economic stupor.  It includes major fiscal stimulus and a loosening of the money supply.