Japan to discuss consumption tax

Japan will start discussing tax reform, including consumption tax, in March, Finance Minister Naoto Kan said on Sunday, in a clear sign ever that it will consider a rise in sales tax to deal with a yawning fiscal gap.

“I want the government’s tax panel to start a comprehensive discussion on tax, such as income tax, corporate tax and perhaps consumption tax and environment tax,” Kan, also deputy prime minister, said on Fuji TV.

Asked about the consumption tax, Kan said the tax panel would start its debate in March.

Worries abound that Tokyo has no plausible plan to put back in order finances that have rattled markets. That pushed the cost of buying protection against a sovereign debt default to a 10-month high in credit derivative markets earlier this month.

Many analysts think the government will have no choice but to raise the sales tax rate, now at a relatively low five percent, to plug its fiscal hole.

But Prime Minister Yukio Hatoyama, who took office in September after a landslide election victory, has pledged not to raise the tax until the next general election, expected in 2013.

Japan will issue a record 53.4 trillion yen ($594 billion) of new bonds in the current fiscal year to March to finance its stimulus packages. It will also sustain a sharp fall in tax revenues after the economy suffered its worst downturn in modern history.

Hatoyama, keen not to be seen as lacking fiscal discipline, limited new bonds for the next fiscal year from April at 44.3 trillion yen.

But estimates by the Finance Ministry showed Japan’s borrowing could soar 25 percent to around 55.3 trillion yen by 2013/14.

Ratings firms have warned the lack of a plan to curb debt could lead to credit downgrades.

Standard and Poor’s said last month it would cut Japan’s rating unless it produced a credible plan to rein in debt and lift growth in an economy plagued by deflation.

The government has said it will come up with long-term fiscal plan by June. But analysts doubt it will call for drastic fiscal tightening ahead of an upper house election this year.

Kan said the government would also consider a taxpayer identification number system to raise the transparency and efficiency of tax collection.

Some experts say the lack of such a system, in place in many countries, has made it difficult to crack down on tax evasion.

Source: Reuters