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Gov't may hike consumption tax to 8% for reconstruction

by Webmaster on 4/20/2011 | Comments | Viewed 5440 time(s) | Full Page View

The government led by the Democratic Party of Japan is considering raising the current 5% consumption tax to 8% for about three years to raise money for reconstruction of the country’s northeastern region devastated by the March 11 earthquake and ensuing tsunami, DPJ senior lawmakers said Tuesday.

If realized, tax revenues will increase about 22.5 trillion yen and the amount will cover much of the extra expenditures for reconstruction expected in the current fiscal year, the lawmakers said.

The government has estimated that the damage from the natural calamities that left around 28,000 people dead or missing could amount to 25 trillion yen.

After submitting the first extra budget of 4 trillion yen to the Diet this month, the government is planning to draw up two further budgets in fiscal 2011. The second and the third budgets are expected to entail a total spending of 20-30 trillion yen, they said.

Many DPJ lawmakers are in favor of raising the tax by 3 percentage points from the next fiscal year starting in April 2012.

But whether the government will actually manage to raise the politically sensitive tax remains very uncertain as there is strong opposition among both ruling and opposition lawmakers.

The Liberal Democratic Party on Tuesday already made it clear that the biggest opposition party will not back the idea.

‘‘The disaster victims will end up having to pay the increased tax as well,’’ LDP Secretary General Nobuteru Ishihara told reporters after holding talks with his DPJ counterpart Katsuya Okada.

Ishihara quoted Okada as saying that the DPJ has yet to finalize the plan so it wants to discuss how to raise enough funds for reconstruction with the opposition party from ‘‘a neutral standpoint.’‘

Government officials say it is possible to allow the victims to receive refunds in the event that the tax is raised. But tax experts have pointed out that such special treatment will likely lead to complicated paperwork.

To avoid a possible negative impact on the economy, some lawmakers say income or corporate taxes should be raised, instead of hiking a tax that will apply to all individuals in the country.

Unlike the first budget, the government believes it cannot avoid issuing bonds to finance upcoming emergency expenditures.

Some DPJ lawmakers are exploring the possibility of raising the consumption tax for a certain period in the name of ‘‘a solidarity tax’’ to repay the bonds.

As part of efforts to rein in Japan’s ballooning debt, however, the Finance Ministry is hoping to maintain the 3-point increase, even after the government redeems the bonds for reconstruction.

Senior officials at the ministry have said that the 8% consumption tax should be kept to cope with swelling social security costs.

The DPJ ‘‘has conducted various studies, including that,’’ Chief Cabinet Secretary Yukio Edano said at a press conference, referring to the possibility of raising the consumption tax. But the top government spokesman also denied that any specific idea is being studied at the government level.

Also Tuesday, the cabinet agreed on a set of measures to help ease tax burdens on people affected by the disaster. They included a step to free the victims from paying fixed-asset taxes on their homes and real estate during the current fiscal year through next March.

Prime Minister Naoto Kan is likely to submit relevant bills for Diet deliberations together with the first budget by the end of this month.

This article is origianlly publsihed at