Recent change in consumption tax in Japan
The OECD Global Forum on VAT held meetings in Tokyo on 17–18 April 2014. These meetings follow the Global Forum’s first meeting in Paris in November 2012. The meetings in Tokyo were part of a series of events commemorating the 50th anniversary of Japan’s participation in the OECD and endorsed new OECD guidelines with respect to cross-border application of VAT.
The Global Forum’s meetings presented an opportune time to discuss VAT in Japan as consumption tax, which is similar to VAT in European countries, is in a transition period. The consumption tax rate increased on 1 April 2014 for the first time in 17 years and is scheduled to rise again in 2015.
The legislation to raise the consumption tax rate was enacted by the Diet on 10 August 2012. The legislation called for the consumption tax rate to increase from five per cent to eight per cent on 1 April 2014 and from eight per cent to 10 per cent on 1 October 2015. While the 2014 increase has taken effect, the legislation contains a provision that could postpone the 2015 increase depending on the economic situation at that time. The government decided to raise the consumption tax rate because Japan’s low birth coupled with its ageing population has strained the finances of the social insurance system. The additional revenue generated by the increased consumption tax rate is intended to be used for expenditures for pensions, medical care and nursing care, as well as measures to attempt to solve the low-birth-rate issue. The prime minister will determine whether the 2015 increase will be implemented as scheduled by the end of this year after considering the need for an increase and Japan’s economic performance this summer, according to news reports…
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