Japan’s Prime Minister formally announced the a delay in the Consumption Tax hike until October 2019. This delay has been predicted for several months but only in the last month did a new date of October 2019 appear. Earlier in the week there was a bit of intrigue as the Finance Minister continued to tow the line the tax increase was still on the table despite the Prime Minister signalling his intent to delay at the G7 meeting. This would mark the second delay in a two stage increase which was passed in 2012 after almost a decade of debate.
An October 2019 date for the Consumption Tax hike will give policy makers more time to make decisions about what items will be subject to the reduced rate. Last year when a compromise was reached on the reduced rate but there will still need to be clear rules drafted so businesses will know which products will be subject to a reduced rate especially in the area of food. A requirement for a successful introduction of the reduced rate was requirement to move to an tax invoice system which is common in the rest of the world. If the tax rises to 10% in October 2019 and there is a reduced rate then there will also be a transitional period for businesses to begin issuing invoices. Under the old timetable by 2020 all businesses would have to issue invoices.
While there has been a discussion of when Japan will increase the Consumption Tax, last year foreign businesses which provide electronic materials to Japanese consumers were required to register, collect and remit the Consumption Tax on behalf of the consumers. Thus leveling the market between offshore companies and Japanese companies. Along with this businesses were required to begin a reverse charge of services received from overseas, which brings Japan closer to other countries on the treatment of cross-border services. It could be when the Consumption Tax delay is formally brought to the Lower House more changes could be made to the place of supply rules to align them with the present trend to tax all remote services.
The delay should spur further consumer spending but there will have to be other revenue measures instituted to make sure the delay does not damage the plan to reduce the deficit. However, the task of implementing the increase when it occurs will fall to another premier, as Shinzo Abe will most likely no longer be the Prime Minister once his term as LDP president ends in September 2018.