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Confusion lingers among consumers as the government kept the 8 percent rate on certain food and drink items in the name of relieving low-income people of an increased tax burden on daily necessities, while offering reward point programs for cashless payments to offset the tax hike. The decision to apply the 10 percent rate on eating at restaurants and shops as opposed to purchasing food for consuming at home, which is taxed at 8 percent left definitional problems to be dealt with by the business establishments.

Alcoholic beverages and cooking condiments are taxed at 10 percent, but the 8 percent rate applies to items containing low alcohol content.

Japan finally raises its consumption tax

Daily newspaper subscriptions, but not occasionally purchased newspapers, are taxed at 8 percent because the lower rate for daily essentials is applied. In short, the consumption tax was made more complex than it has been since its launch in This complexity robs it of one of its greatest advantages — simplicity.

Politicians as representatives of the people are expected to play a combination of internally contradictory roles. The two roles may be shared by politicians and bureaucrats, or divided between them. The initial attempt to introduce a major indirect tax came amid a slowdown in economic growth following the oil crisis in Ohira was a Finance Ministry bureaucrat before joining politics and had a good understanding of tax policy.

Robert Frank: Consumption Tax

But he could not guide the party to accept an unpopular tax reform. Prime Minister Yasuhiro Nakasone saw an opportunity to push through an unpopular new indirect tax as the economy headed toward the bubble boom of the late s. But his earlier campaign promise not to introduce wide-ranging taxation became a liability when he proposed a multi-staged value-added sales tax.

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The consumption tax hike delays painful spending reforms

The LDP Research Council on Tax System was composed of several politicians with tax expertise, such as Sadanori Yadmanaka, who understood the advantages and disadvantages of different indirect taxes. Since , the consumption tax has been hiked three times, and the previous two increases took a political toll on the ruling party and sitting prime minister.


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A growing collaboration between the pro-tax hike bureaucrats within the Finance Ministry and the politicians, however, resorted to a deceptive campaign to pitch the new consumption tax rate as a source of revenue to pay for the anticipated increase in social security and welfare spending. An amendment in under Prime Minister Yoshihiko Noda of the Democratic Party of Japan — a liberal competitor to the LDP then — explicitly limited the use of the additional consumption tax revenue to social security and tax transfers to municipalities while raising the tax rate to 8 percent from The tax rate was scheduled to rise again to 10 percent in , but Prime Minister Shinzo Abe, fearing a repeat of the hike that took a heavy toll on the economy, twice postponed it before finally letting the increase take effect this month.

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Linking the consumption tax to social security allows the government to avoid a comprehensive overhaul of social security programs to create a more self-sustaining system. Most importantly, the rapid aging of the population requires raising the starting age for payouts of public pension benefits — another unpopular reform for the growing population of senior citizens.

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Tax rates on goods such as food products, drinks and newspapers were reduced to decrease the tax burden on low income citizens. But implementing multiple tax rates is convoluted and Japan could adopt more efficient solutions by learning from the valued-added tax experiences of other countries. These measures should only be used for temporary relief until consumption stabilises, as the abuse of countermeasures is not preferable.

The Japanese government is taking fiscal reconstruction measures to achieve a primary balance surplus and a stable reduction in the debt-to-GDP ratio by Both since the previous and current administrations repeatedly postponed such fiscal reconstruction goals the changes are now long overdue. Because of its rapidly aging population , social security is the largest source of public expenditure in Japan.

The consumption tax hike delays painful spending reforms | The Japan Times

Services like medical care, pensions and nursing are partially financed by social insurance premiums and individual payments. But nearly 35 per cent of social insurance benefits are still supported by tax. During the financial year, as the baby boomer generation turns 75 or older, social security benefits are expected to continue to grow from The Abe administration sees no need to raise the consumption tax again and seems satisfied to leave arguments over the tax to future administrations.


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The IMF has already predicted the possibility of another tax rate hike for the purposes of fiscal reconstruction, especially to reduce risks associated with debt sustainability. It has proposed gradual and steady increases in the consumption tax rate beyond 10 per cent and up to 15 per cent. In tandem with further consumption tax reform, Japan should also explore the possibilities of income tax reform. Dependence on income tax as a means to secure tax revenue is not desirable in a globalised economy.