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Tuesday, Dec. 6, 2011

Q&A

Why is Japan debating consumption tax hike?

Kyodo

Why is the government trying to increase the consumption tax?

The idea is being debated as part of proposed reforms of both the tax and social security systems. The current social security system — encompassing old-age pensions, and health and nursing care — is becoming nonviable due to the aging of society and other changes in the nation's social fabric. It has become necessary therefore to reform the system as well as consider how to fund the reform.

What has been discussed so far on the issue?

The tax hike has been considered necessary ever since the Liberal Democratic Party was in power. After the Democratic Party of Japan took over from the LDP in 2009, the government and the DPJ decided in June to raise the tax rate in phases to 10 percent by the mid-2010s from the current 5 percent. They aim to submit relevant tax legislation to the Diet by March 31.

Wasn't the proposed social security reform supposed to be funded by eliminating wasteful government spending?

The DPJ-led government did cut waste but was unable to secure all necessary funding.

What's the schedule going forward?

The government aims to lay out the broad outlines for both social security and tax reforms before Dec. 24 after mapping out an overall vision for social security reform by around Dec. 7.

Will the tax rate be immediately raised to 10 percent?

The government appears to be inclined toward raising it in two phases. It is eying a rise to 7 or 8 percent by October 2013 or later, after which it will be hikes to 10 percent in April 2015 or thereafter. But Prime Minister Yoshihiko Noda said he intends to seek a public mandate on the issue by dissolving the House of Representatives for a general election after tax hike legislation is passed but prior to any tax increase.



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