Japanese Consumption Tax (VAT) rise to 10% delayed

Wed 19th Nov 2014

Plans for a second rise in the Japanese Consumption Tax rate in October 2015, taking it to 10%, are to be put on hold.  The Prime Minister of the country, Shinzo Abe, has called a new election for a mandate to delay the VAT rise until the economy is more stable.

The rise, planned for 1 October 2015, may now happen in April 2017.  But a number of the parties from both sides of the political spectrum confirmed proposals for a reduced Japanese Consumption Tax rates when the rise does eventually come. You can review EU VAT rates here.

Japan slips into recession following tax rise

Japan’s third quarter GDP figures revealed that the country has officially slipped into recession.  GDP numbers showed a contraction of 1.6% in GDP on top of the second quarter’s 7.3% fall.  Two quarters of negative GDP figures are commonly used as the definition of a technical recession.

Earlier mediocre growth figures in the corporate sector had put pressure on the reformist government not to go ahead with the planned October Consumption tax rise 2015 increase.  Stock markets in Japan rose sharply recently hoping that Prime Ministery Abe would retreat on the key reform, designed to help fund a fast-ageing population.

2-stage Consumption Tax rise

The Japanese VAT rise was announced in 2011 as one of the many reforms to bring the country out of a 20-year economic malaise.  Japan also faces the world’s largest stock of sovereign debt.

The first increase was in April of the year, when the rate rose from 5% to 8%.  The second rise to 10% was always conditional on the economy performing well – which was taken as growth of at least 3% of GDP.

The last major rise Consumption Tax, from 3% to 5% in April 1997 led to the fall of the government at the time.