Tax Proposals Extend Breaks, Avoid Hike in Consumption Tax

Reviewed by Takahiro MIYAO

Article:
Tax Proposals Extend Breaks, Avoid Hike in Consumption Tax
The Japan Times (12/14/2007)
http://search.japantimes.co.jp/cgi-bin/nb20071214a1.html

Comments:

Japan's ruling LDP and New Komeito coalition formally announced tax reform proposals for fiscal 2008 on Thursday, trying to avoid tax increases at least for the time being. Notably conspicuous are the lack of a concrete time table for consumption tax increases and the conditional extension of the current preferential taxes for capital gains and dividends. It has been widely argued that the consumption tax should be raised as soon as possible to finance the nation's rapidly growing budget for social security services and the taxes on stocks, currently 10%, should be reverted to the original 20% immediately in order to stop the favorable treatment of the "wealthy."

Therefore, there are already severe criticisms against the proposals, which appear to some observers to be a bad compromise on the part of the ruling coalition, which is worrying about upcoming Lower House elections. That may be partly true, as no political leader would dare to announce major tax hikes just before his or her elections. This time, however, we should be aware of another reason for the hesitation to raise taxes for next year, that is, declining economic conditions at home and abroad. As is well known, the global economy is suffering from the "subprime" problem and recession appears to be a distinct possibility for the US and other advanced economies, which would certainly affect the Japanese economy in the negative direction. Furthermore, Japan's domestic economy itself seems to be weakening precipitously, as private consumption and investment as well as housing are down rather significantly these days.

One might be inclined to conclude that given this kind of general economic conditions at home and aboard, no government could (and should) raise taxes, no matter how urgent the nation's fiscal needs are. The remaining question, of course, is whether or not the opposition parties can understand the general economic circumstances to support the stance of the ruling coalition on tax reform for next year.

Acknowledgment:
This review is adopted from the following blog (with its Japanese translation):
http://glocom.blog59.fc2.com/blog-date-20071214.html