Japan strong economic performance means consumption tax rise likely

Thu 5th Sep 2013

Recent improving economic data means that the planned doubling of Japanese Consumption Tax to 10% is more likely to get the green light this Autumn.  Japanese Premier Abe may feel confident enough to confirm the rise at this week’s G20 summit in Moscow.

Japanese Consumption Tax lowest in OECD

The plan to raise the Japanese VAT tax, firstly to 8% from 5% in April 2014 and then to 10% in October 2015, was first announced in 2011.  The rise was seen as necessary to meet the spiraling costs of an ageing population.  However, it was predicated on improving economic conditions.

The current 5% Japanese Consumption Tax rate is the lowest in the OECD (although the US does not have a VAT tax), and compares to the European average VAT rate of over 21%.

New economic data means VAT increase likely

Recent data from Japan has shown falling unemployment, raising household expenditure and improved industrial production.  This follows a dramatic change in the Japanese economic strategy by Premier Abe, who loosened fiscal policy to help guide Japan out of a long-term slump.