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Home > Media Reviews > News Review Last Updated: 14:54 03/09/2007
News Review #308: August 29, 2005

Japan Ruling Party Eyes Consumption Tax Rise in 2007

Reviewed by Hitoshi URABE

Japan Ruling Party Eyes Consumption Tax Rise in 2007
(AFX News) Forbes


Indirect taxes in Japan were never considered a major source of government revenue - Japanese people always recognized tax as a levy on income or wealth, and not something based on transactions such as trade.

Some say it is related to the mentality formed through Japan's long history showing disdain for merchants as looters on goods produced by "legitimate" working people. In Edo era, before Meiji Restoration, a social class system was maintained, which places worriers at the top (obviously) class, then farmers the next, technical workers at the third, and finally merchants at the bottom of society.

Technical reasons were also often mentioned. For the most of Japan's workers, income taxes have been normally withheld by the employee who pays taxes directly to the authorities on the employees' behalf. Amount of taxes are stipulated in the payroll details, but most of the workers, as they did not need to calculate or file their tax returns, or make payments out of their pockets. This made people less keen to taxes and its system on the whole, in turn making it easy for the administrators to levy and collect them.

Then the consumption tax, as it is dubbed, was proposed. It was actually a modified form of a value added tax system. This made people suddenly aware of taxes in general, and being the consumption tax very visible - explicitly paying it whenever purchase of goods or services are made - became a good target to focus on people's frustration over taxes in general. As such, consumption tax has always been considered a taboo in politics, with sad stories abundant. The first Prime Minister attempting to implement the tax, Mr Ohira in 1978 failed against a public uprise against it, and was ousted. Then Prime Minister Nakasone, considered as a strong leader having successfully privatized the National Railroad, failed again in 1986. It was finally Mr Takeshita, when he was Prime Minster in 1988, succeeded in instituting the current consumption tax system against the bellow of opposers, at the rate of 3%. Mr Takeshita had to quit shortly afterwards, mainly because of he established the unpopular tax. Then, in 1997, Prime Minister Hashimoto increased the tax rate from 3% to 5%. He, too, was thrown out of the office shortly afterwards, condemned of blocking the economic recovery and accused of making people's lives more difficult.

With all this history in the background, shortly after taking the office, Prime Minister Koizumi declared that the consumption tax would never be raised as long as he is in the office. This surprised many people - perhaps more so for supporters of Mr Koizumi than the opponents. As fiscal reform was one of Mr Koizumi's major policy objectives, the announcement puzzled many of those versed in economics and public finance, and discouraged, in varying degrees, those generally in favor of the Koizumi reform package.

There are two schools of people who were not satisfied with the failed Postal Privatization bill the Koizumi Government submitted to the Diet, those opposed to privatization - as being reported daily, and those who think the bill has not gone far enough in making the privatization effective as a part of the reform. In fact, there are many in the business sector - may be more than can be estimated from various media reports - who normally would not express political opinions in public, who take the latter stance.

For those feel a strong need for Japan's reform, even Mr Koizumi is too weak and too often vague in his determination - a different issue but some say somewhat similar to his attitudes toward his Yasukuni visit.

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