Japan: Consumption Tax update (November 2019 update)
On 1st October 2019, Japan increased the standard consumption tax rate from 8% to 10%.
This increase was introduced to cover the cost of:
- social security spending on pensions,
- medical and old-age care
- and support for childbearing and child rearing.
There is also a reduced rate of 8% introduced for such things as basic food products and subscriptions to newspapers that are published at least twice a week.
There are concerns surrounding the confusion that will arise from the introduction of this new tax rate, as consumers are not accustomed to the dual-rate system. This dual rate system can be explained using the following example:
- If people eat in at the restaurant a 10% tax will be applied. If people purchase something to eat but take it to-go, an 8% tax rate will be applied. In some cases this will occur in the same establishment.
Japanese retail sales grew at the strongest pace in fiver and a half years in September as consumers rushed to purchase goods before the increase in sales tax. This increase had been postponed twice previously and this is the first time the consumption tax has increased since 2014. In 2014, the economy shrank 7.3% after the increase as consumer spending decreased. It is hoped that this will not happen again.