Japan raises sales tax
Japan has raised its consumption tax for the first time in 17 years
in an attempt to rein in public debt. Sales tax has been increased from
5% to 8%. It will rise again, to 10%, in October 2015.
Prime Minister Shinzo Abe said he would continue to take "necessary
action" to address livelihood issues and keep Japan's economy on track.
The stepped tax increases are aimed at covering rising social welfare
costs linked to Japan's ageing population. Japan has one of the lowest
birth rates in the world. It also has the world's highest ratio of
elderly to young people, raising serious concerns about future economic
The last hike in 1997 saw Japan's consumption tax - the equivalent of
VAT (value-added tax) or sales tax - rise to 5% from 3%.
Almost immediately afterwards, Japan plunged into a deep recession
with a lasting impact: the country has struggled to escape the trap of
deflation, or decreasing prices, almost yearly ever since.
A tax increase has been discussed in Japan for several years, but it
has always been perceived as highly unpopular with the electorate. The
current rise is expected to present a challenge to Abe's aim of forcing
Japan's economy out of deflation and serial recession.
Separate data indicated that those concerns are shared by the
business community. The results of the Tankan survey, which polls more
than 10,500 Japanese companies about their business outlook, indicated
that Japanese firms were not optimistic about the rest of the year.
However, analysts say Japan's economy will have a better chance of
surviving the tax rise this time round.
"Everybody was extremely worried because of the bad impact of the
last hike, but this time it seems to be widely accepted," said an
analyst at Fujitsu Research Institute, Martin Schulz.
"Demand is strong and it will not drop that much as many have been
fearing," he said.