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6 Aug 2013
IMF urges Japan to approve sales tax hike
FXstreet.com (Barcelona) - The International Monetary Fund pressed the Japanese government to keep up its electoral promises by implementing the consumption tax hike on April 2014 as initially planned, the agency said on Monday.
The IMF, In its annual report on the Japanese economy, said it is "an essential first step to contain fiscal vulnerabilities", adding that "the scheduled tax increases in April 2014 and October 2015 should proceed as planned as they are critical to maintain confidence in the ability of the government to address the fiscal problem.”
The Japanese coalition government, which enjoys a comfortable majority in both upper and lower houses, is still under a period of deliberation to assess the potential impact on the economy should a sales tax hike be implemented. Some economists have suggested the tax may slow down the economic recovery, however, recent public comments by Finance Minister Taro Aso suggest the tax is well on track to be approved.
IMF added: “Introducing multiple rates (featuring a lower tax rate for food and other daily necessities) should be avoided as it would severely dilute revenue gains, complicate tax administration, and impose a costly administrative burden on small and medium-sized enterprises... instead, targeted transfers could be considered to compensate low-income households.”
Additional recommendations by the IMF, this time from a mid-term perspective starting 2015, included Japan gradually increasing the consumption tax to “a uniform rate of at least 15 percent, closer to OECD averages. IMF was very vocal on warning about a significant decrease on the country's high debt levels.
IMF dded that “the growth outlook is subject to significant risks, primarily stemming from incomplete domestic reforms and a weaker external environment, and that sustained implementation of the authorities’ reform program is the best way to minimize these risks.”
The IMF, In its annual report on the Japanese economy, said it is "an essential first step to contain fiscal vulnerabilities", adding that "the scheduled tax increases in April 2014 and October 2015 should proceed as planned as they are critical to maintain confidence in the ability of the government to address the fiscal problem.”
The Japanese coalition government, which enjoys a comfortable majority in both upper and lower houses, is still under a period of deliberation to assess the potential impact on the economy should a sales tax hike be implemented. Some economists have suggested the tax may slow down the economic recovery, however, recent public comments by Finance Minister Taro Aso suggest the tax is well on track to be approved.
IMF added: “Introducing multiple rates (featuring a lower tax rate for food and other daily necessities) should be avoided as it would severely dilute revenue gains, complicate tax administration, and impose a costly administrative burden on small and medium-sized enterprises... instead, targeted transfers could be considered to compensate low-income households.”
Additional recommendations by the IMF, this time from a mid-term perspective starting 2015, included Japan gradually increasing the consumption tax to “a uniform rate of at least 15 percent, closer to OECD averages. IMF was very vocal on warning about a significant decrease on the country's high debt levels.
IMF dded that “the growth outlook is subject to significant risks, primarily stemming from incomplete domestic reforms and a weaker external environment, and that sustained implementation of the authorities’ reform program is the best way to minimize these risks.”