Tax & Accounting Blog

Consumption Tax Hike Delayed Again

Blog, Indirect Tax, ONESOURCE, VAT Tax Rates, VAT-GST Management May 13, 2016

The April 2017 Consumption Tax increase will be postponed for an indefinite period of time. The Prime Minister has informed the Cabinet of his plan to delay the Consumption Tax increase from 8% to 10% and there is no new date for the increase. The public discussion around delay of the Consumption Tax swirled several months and after the recent earthquake in Japan it was postulated the tax increase would delayed. Nobel Laureate Joseph Stiglitz advised a delaying the increase until the economy is stronger.

Japan’s Consumption Tax is a value added tax and it accounts for only 9% of Japan’s tax revenue which is half of the OECD average and its increase would allow for more tax revenue to tackle high government debt. However, the previous Consumption Tax increase rattled Japanese consumers which decreased economic performance which delayed the tax increase. Now combined with a slowing China, Japanese economic performance is continuing to be weak.

Delaying the Consumption Tax increase will require new legislation because the last delay of the Consumption Tax made 1 April 2017 as a date for the increase to 10%. The parliament is in session until 1 June 2016 and it is expected the announcement of the Consumption Tax delay will occur after the completion of the legislative session. If the delay is announced a special session will have to be called in order to amend the laws to delay the Consumption Tax. The delay in the rate increase would delay the reduced rate and the introduction of tax invoices.

Businesses which were thinking about how to modify their business processes for the introduction of a reduced rate and tax invoices would now face a new uncertainty about when these changes would need to be made. Under the present plans, the rate would increase in 2017 and tax invoices would be required in 2020. Now with a delay, the rate increase could be pushed until 2019 and no idea when or if a reduced rate and tax invoices would be required.

A new date for the reforms to the Consumption Tax could be confirmed later in 2016.