Tax

January 2006

LDP Panel Head Eyes 10% Sales Tax At 'Earliest Possible Time'
The Liberal Democratic Party's tax panel chief expressed support Monday for approximately doubling the 5% consumption tax at "the earliest possible time." "The issue is whether we can raise it to around 10%," LDP Tax Commission Chairman Hakuo Yanagisawa said in a speech. Referring to the need to secure a source of funds to pay for social-security-related expenses, which are expected to continue growing in the years ahead, he stated: "We need to think about tax hikes." But instead of raising the tax to 10% in a single stroke, the government could weigh gradual increases as a possible option, according to Yanagisawa. He also implied that the consumption tax could be transformed into a tax specifically to fund social security programs. "We need to win the understanding (of the people) by clarifying that we will not use it for odd purposes," he said. Yanagisawa also put forth the view that consumption tax hike discussions should be concluded as early as this year. Social security expenses, which are to reach 88 trillion yen in fiscal 2005, are projected to balloon to around 120 trillion yen in fiscal 2015 in line with Japan's aging population. An interim report compiled last October by an LDP fiscal reform study panel headed by Yanagisawa noted the possibility that the consumption tax could be up to 12-15% in fiscal 2015. But the latest figure of around 10% appears to be the magic number that he and others believe will win taxpayer acceptance in exchange for spending cuts. Both LDP Policy Research Council Chairman Hidenao Nakagawa and Internal Affairs Minister Heizo Takenaka believe that spending cuts should come before tax hikes. Takenaka has said the government should be able to hold down the consumption tax rate to either 10% or slightly higher by overcoming deflation and implementing spending cuts. Yanagisawa's call for a roughly 10% tax rate is similar to Takenaka's figure, but they differ on when the hike should be implemented. Yanagisawa wants the hike to take effect at an early time, while Takenaka holds that an increase should be part of a broader improvement in economic conditions. (The Nihon Keizai Shimbun, January 31, 2006)

Politicians Must Set Timing, Size Of Consumption Tax Hike: Panel
The timing and scale of a consumption tax hike is a political decision, the chairman of the government's Tax Commission said Friday. The advisory panel to the prime minister began discussions the same day regarding the prospective tax framework for the nation. Its conclusions are to be included in a triennial medium-term outlook report. In the 2003 report, the Tax Commission stated that the consumption tax, which is currently 5%, would need to be raised to double digits. In a news conference following the meeting, Chairman Hiromitsu Ishi acknowledged that present conditions point in the same direction and urged that the tax be raised to the 10% level. But given that the government and ruling parties have not made progress on whether to increase the consumption tax, Ishi indicated that the report will not include such specifics as the timing and scope of a potential rate hike. "We'll create a framework that the public can use as a basis for discussion," Ishi said of the report. The document will outline options for combining spending cuts and tax hikes to achieve fiscal reconstruction, according to Ishi. The report will also address the choices of raising taxes through the consumption tax or income tax, he said. (The Nihon Keizai Shimbun, January 28, 2006)