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Japan May Announce Consumption Tax Hike Today

The Japanese Prime Minister, Shinzo Abe, is expected to announce on Monday the country’s decision on the proposal to raise its consumption tax rate to 10% from 8% to take effect from October 2019.

A news report sourced from Nikkei described the proposed fiscal measure as “a bitter pill seen as necessary to help pay for free preschool and other social security initiatives.

The government is expected to consider ways to lessen the burden of the hike on consumers, such as by easing the burden of buying and owning durable goods like homes and cars, as it anticipates a rush of demand before the hike and seeks to avert a slump thereafter.

According to the news report, other measures billed for consideration by the Abe-led government include keeping the tax rate at 8% for food and drinks, except at eateries and for alcohol.

In addition, it is projected that small and midsize businesses may benefit also from a proposal to offer consumers rewards points equivalent to 2% of their purchase when they pay by credit card or other noncash means.

By government’s plans, the additional revenue raked from the proposed hike would be committed to measures aimed at helping child-rearing households, such as making early childhood education free, as Japan’s population ages and dwindles.

It would be recalled that the Prime minister had vowed to channel the new revenue toward such social initiatives leading up to the Diet lower house election last October, which his ruling Liberal Democratic Party won.

It is also believed that recent natural disasters in the country had also encouraged the government to increase public works spending.

Before the latest plan to jack up the consumption tax, it was raised to 8% from 5% in 2014, but the increase to 10% has been delayed twice amid concerns over the impact on the economy.

However, the Abe-led government appeared now set to get the proposal through, barring an economic shock on par with the 2008 financial crisis.

The prime minister was quoted by Nikkei as saying during in an interview in September that he had “gained the understanding of the people, and must see things through.”

The announcement of the consumption tax hike is due at an extraordinary cabinet meeting for approving a supplementary fiscal 2018 budget of around 940 billion yen ($8.38 billion) to aid areas hit by recent earthquakes, typhoons and other natural disasters.

The Nikkei reported further that funds for measures related to the tax increase were expected to be earmarked in this supplementary budget as well as the initial budget for fiscal 2019.



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