Raise in Consumption Tax Planned for Japan

The Japanese government had planned to raise the consumption tax from 8% to 10% from 1 October 2019. This hike in consumption tax could be delayed due to Japan’s economy and political uncertainty.

The Prime Minister has reiterated he plans to raise consumption tax rate but there is growing speculation he could be forced to postpone this increase. There are fears that an increase in this tax could push the economy into recession. It appears that the current economic condition in Japan is worse now than it was when the Prime Minister postponed this hike in the past.

The increase has already been postponed twice since 2015 in a bid to ensure the economy would continue to expand. As we know, there was a rise in 2014 from 5% to 8% but this contributed to the economy taking a turn towards recession.

There are outside factors that are currently affecting Japan’s economy and these will need to be taken into account – the conflict between China and the US is causing serious concern for Japan’s business lenders and will need to be taken into account when making this decision. Also, uncertainty surrounding the UK’s plan to leave the EU has caused great concern for Japanese firms and in turn, are reluctant to make fresh investments.

A quarterly survey of business confidence from the Japanese central bank will be available in 1 July 2019. This will also be taken into account when making this decision.

In the past few days, the head of the Japan Chamber of Commerce has given his support to stick to the plan and increase the tax rate in October 2019 saying, “With just a few months left before October, it’s impossible to delay it again”. Many people are focused on the fact that Japan needs to generate revenue to pay for the welfare costs of the aging population and curb the public debt burden (this is currently twice the size of its $5 trillion economy).

We will keep a close eye on this and update you when we know more.

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